Adjusting Entry for Supplies Expense
The accounting process for office or store supplies is similar to the procedure followed for prepaid or unexpired expenses. Specifically, they are initially recorded as assets by debiting the office or store supplies account and crediting the cash account.
At the end of the accounting period, the cost of supplies used during the period becomes an expense and an adjusting entry is made. Without this adjusting entry, the income statement will show higher income and the balance sheet will show supplies that do not exist.
Accounting Process for Supplies
Entry at the Time of Purchasing Supplies
Adjusting Entry at the End of Accounting Period
At the end of the accounting period, the cost of the supplies used during the period is computed and an adjusting entry is made to record the supplies expense. This entry is made as follows:
The Green Company purchased office supplies costing $500 on 1 January 2016. Out of this, supplies costing $150 remained unused on 31 December 2016.
Required: In the company’s books:
- Make a journal entry on 1 January 2016, when the office supplies are purchased
- Make an adjusting entry on 31 December 2016 to record the supplies expense
1. When supplies are purchased
2. When cost of supplies used is recorded as supplies expense
Supplies expense for the period = $500 – $150 = $350
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.