How to account for supplies

Supplies are incidental items that are expected to be consumed in the near future. The normal accounting for supplies is to charge them to expense when you purchase them, using this entry:

  Debit Credit
Supplies expense xxx  
     Accounts payable   xxx


If the cost of the supplies that you have purchased and not yet consumed is significant, then you can instead record them as an asset, using the following entry:

  Debit Credit
Supplies on hand xxx  
     Accounts payable   xxx


By using this later approach, the supplies will appear on your balance sheet as a current asset, until you use them and charge them to expense with this entry:

  Debit Credit
Supplies expense xxx  
     Supplies on hand   xxx

Thus, consuming supplies converts the supplies asset into an expense.

Despite the temptation to record supplies as an asset, it is generally much easier to record supplies as an expense as soon as you purchase them, since you can thereby avoid tracking the amount and cost of supplies on hand. Also, charging supplies to expense allows you to avoid the fees charged by external auditors who would otherwise want to audit the supplies on hand asset account.

Related Courses

Bookkeeper Education Bundle 
Bookkeeping Guidebook