What is the proper accounting for supplies?

Definition of Supplies

Office supplies are items used to carry out tasks in a company's departments outside of manufacturing or shipping. Office supplies are likely to include paper, printer cartridges, pens, etc.

Shipping supplies are the cartons, tape, shrink wrap, etc. for preparing products that are being shipped to customers.

Manufacturing supplies are items used in the manufacturing facilities, but are not a direct material for the products manufactured. These will include a wide variety of items from cleaning supplies to machine lubricants.

Accounting for Office Supplies

The cost of office supplies on hand at the end of an accounting period should be the balance in a current asset account such as Supplies or Supplies on Hand. The cost of the office supplies used up during the accounting period should be recorded in the income statement account Supplies Expense. When supplies are purchased, the amount will be debited to Supplies. At the end of the accounting period, the balance in the account Supplies will be adjusted to be the amount on hand, and the amount of the adjustment will be recorded in Supplies Expense. (If the amount of supplies on hand is insignificant, a company may simply debit Supplies Expense when the supplies are purchased.)

Accounting for Shipping Supplies

The cost of shipping supplies on hand will be reported as a current asset on the balance sheet and the shipping supplies used during the accounting period will be reported on the income statement as Shipping Supplies Expense.

Accounting for Manufacturing Supplies

The cost of manufacturing supplies on hand at the end of an accounting period will be reported in a balance sheet current asset account such as Inventory of Manufacturing Supplies. (There are likely to be several accounts or sub-accounts in order keep track of the manufacturing supplies by category.) When the manufacturing supplies are used they will become part of the manufacturing overhead, which is then allocated to the products manufactured.

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