Office Supplies are expenses that are incurred during the course of operations within the company. As a matter of fact, it can be seen that there are numerous different needs in regular office work that needs to be catered to by the organization. These expenditures, although not significant stand-alone, tend to be significant when amalgamated as per yearly totals. Hence, they are rudimentary from an accounting perspective and require to be treated correctly as per accounting standards.
Therefore, in order to understand the bifurcation of office supplies and the respective categorization, it is important to understand the type of office supplies and the usage within the organizations. Contingent on the categorization, they are treated in accordance as per accounting treatments.
Office Supplies – An Explanation
Office Supplies include copy paper, toner cartridges, stationery items, and other miscellaneous desk supplies. Given the fact that there is a multitude of items included in the office supplies, it is hard to keep accounts and manage inventory for all of them individually. Therefore, there is a need to club all these items under one heading, and ensure that they are accounted for under one heading, i.e. office supplies.
The general usage of office supplies is concurrent. It is barely planned ahead of time or taken into consideration at a higher level. Hence, it can be seen that these supplies are treated as a running account, and all double-entry adjustments are subsequently made depending on the transactions taking place across a continuum of time. In order to understand the correct accounting procedure, it is important to consider the time into the following subcategories.
- Supplies at the Beginning of the Year: At the Beginning of a financial year, there might be some supplies that would be carried forward from the previous year. On the previous year’s Balance Sheet, they would be present under Current Assets. Another way to look at this is the fact that they were Prepaid Expenses that were paid in advance, but the utility from these supplies is yet to be derived.
- Supplies used During the Year: In addition to this, there are also a few supplies that are used during the year. For these supplies, it is important to ensure that these are expenses, just like any other expense that is incurred by the company over the year. The utilized office supplies are expenses in the Profit and Loss Account of the company.
- Supplies left unused at the End of the Year: For supplies that are left unutilized at the end of the year, they are supposed to be treated as Current Assets at the end of the year, because of the fact that company has already paid for these supplies in advance but is yet to extract the utility from these particular supplies. Therefore, they are treated as Current Assets in the Balance Sheet.
Therefore, to summarize the accounting treatment that has been mentioned above, it can be seen that Office Supplies can best be termed as an Expense Account. It is not a Capital Expenditure, so it is not supposed to be included in the Non-Current Assets. Another reason for not including such an amount is the fact that the utility that is likely to be derived from these Office Supplies is unlikely to last for more than a year. These are perpetually incurring expenses, which can best be described as Operating Expenses.
Although it is very rare, in some cases, Office Supplies are treated as a Current Liability when the company is yet to pay for these supplies, and the balance is outstanding at the end of the Current Year. However, this instance is very unlikely because it barely ever happens, office supplies accounts are settled then and there because it is not a significant amount, and organizations are unlikely to take these goods on credit from their suppliers.
Adjusting Journal Entries for Office Supplies
The following journal entries are created when dealing with Office Supplies.
At the end of the year, the following journal entries are created, in case there are office supplies present on hand.
|Office Supplies Expense (Prepaid)||xxx|
The following example will show how to make journal entries for office supplies:
Company ABC paid for office supplies on 1st June 2020, for $200, and making payment by cheque to the vendor.
At the end of the year, Company ABC had $50 of the Office Supplies still remaining.
|Office Supplies Expense (Prepaid)||$50|
Therefore, to sum up, what has been said above, it can be seen that office supplies are goods that are used by the company in order to carry out basic functions. Examples of office supplies include stationery, fittings, papers, and other miscellaneous items that are used in the daily functions of the business.
Given the fact that they are not that significant of investment in terms of finances, they are treated as non-capital expenses or operating expenses. Factually, these expenses are expensed with every passing year, and the remaining amount is treated as a Current Asset if paid in advance, and as a Current Liability, if not.