Office supplies are items that a business uses in routine tasks. Usually, businesses account for supplies as expenses. However, a business can also record them as assets.
A business can categorize office supplies, expenses, and equipment accordingly. The accounting treatment for them will also differ.
Let us discuss the accounting treatment and asset classification of office supplies.
Common examples of office supplies include printing paper, letter envelopes, ink cartridges, staplers, filing covers, and so on.
Usually, offices supplies are insignificant for most businesses. In that case, many businesses record them as expenses. A business would record the purchases as an expense in the general ledger. The entry would be recorded under the admin or general expenses on the income statement of a business.
However, often businesses purchase office supplies in bulk and store them.
Supplies purchased in bulk result in a significant amount. A business should record an asset for these supplies. Generally, a business would record supplies under inventory line items. Subsequently, that entry would be recorded under current assets on the balance sheet of the business.
It is important to distinguish between office supplies and office equipment. Also, it is important to note that these guidelines are related to office supplies for usage in office work. If a business is in the manufacturing or retail business of selling office supplies, the accounting treatment for these purchases will differ significantly.
Office Supplies, Equipment, and Expenses
Recording office supplies is a straightforward task. However, things get complicated when a business incurs office expenses, makes purchases for supplies, and buys equipment.
Before a business can record supplies as an expense or an asset, it is important to categorize these items accordingly.
Office supplies are items that employees use in doing daily office tasks. These are supporting items to perform various jobs at work.
Office supplies include:
- Ink, toners, cartridges,
- Pencils, pens, pointers, etc.
- Staplers, pins, punching, paper shredding machines, etc.
The list can be different and of any length depending on the needs of an office. However, there is one thing in common for all of these items. These items are all consumable.
It means all of these items are consumed and cannot be reused. Although many of these items can be recycled. Mostly, an office would need to purchase new items again.
This nature of consuming an item means, office supplies should be recorded as an expense. However, since large businesses buy these items in bulk and they cannot be consumed quickly, they carry value.
Office supplies purchased for significant amounts should be recorded as current assets rather than a direct expense. The business can then record an expense as and when these supplies are consumed.
Office equipment is the machinery and tools used by a business for its admin and office works. These are substantially larger expenses as compared to supplies and office expenses.
Office equipment is recorded as assets on the balance sheet of a company. If a business estimates a useful life of more than one year for an office equipment item, it should be recorded as a long-term or fixed asset.
Office equipment includes:
- Computers and printers
- Scanners and copiers
- Electronic items
A Long-term asset can be depreciated over its estimated useful life. If the amount meets a threshold set by the IRS, it can be depreciated at once as well.
Often used interchangeably as supplies, these expenses can be recorded separately. Most of these expenses are intangible such as software subscriptions, website designing, and office maintenance costs.
Classification of Office Supplies
One of the easiest ways to classify offices supplies is to analyze the materiality aspect. It means whether the supplies will have a significant impact on your business.
Most of the office supplies do not have a material impact. Thus, they should be recorded immediately as expenses.
Here are a few key points to remember when classifying office supplies.
- Most of the office supplies are consumable items. If you buy these items regularly and keep consuming them, record them as an expense.
- Determine the timeframe to utilize these items. For instance, if you outsource office maintenance it should be recorded as an expense.
- If you spend a significant amount on these items and it exceeds the threshold amount of $2,500 set by the IRS, you can depreciate these items over several years. These items will be recorded as fixed assets.
- If the supplies impact your business accounts significantly, you can record them as assets. For instance, if a small business purchases in bulk and the total is a large amount.
Accounting for Office Supplies – Example
For small purchases of supplies, you can directly record a double entry in your account books. You can debit the office supplies account and credit the cash account for the same amount of the transaction.
Suppose a business makes the following purchases during the month.
- Pens, pencils, and papers for $ 100
- A4 printing paper $50
- Staple pins, paper clips, etc. For $ 10
- Office maintenance and cleaning charges $ 150
- Monthly software subscription $ 75
- A new copier for $ 2,700
- New laptop for office uses $ 1,200
Now let us classify and record these transactions.
Pens, pencils, and papers for $ 100 + A4 printing paper $50 + Staple pins, paper clips, etc. For $ 10 = $ 160
|Office Supplies||$ 160|
Office maintenance and cleaning charges $ 150 + Monthly software subscription $ 75
|Office Expense||$ 225|
A new copier for $ 2,700 + New laptop for office uses $ 1,200
|Office Supplies||$ 1,200|
If the entry is on accounts, then you’ll credit accounts payable here. Also, you can choose to record both of these items as assets.
|Fixed Assets||$ 2,700|
Suppose the copier has a $200 salvage value after 5 years. Then, the depreciation expense will be:
Depreciation Expense = (2,700 – 200)/5 = $ 500 per year
|Depreciation Expense||$ 500|
|Accumulated Depreciation||$ 500|
Office Supplies and Depreciation
Office supplies are either recorded as direct expenses or short-term current assets. Either way, you do not depreciate office supplies.
Depreciation is recorded only for office equipment. If the purchase amount for office equipment exceeds the threshold amount of $2,500 along with other criteria, you can use the depreciation account.
Another key point to consider is the useful life of an item. If office equipment has a useful life of more than one year, you can record it as an asset. If it also meets the threshold amount qualification, you can record it as a fixed asset in the account books.
Office Supplies as Inventory
Office supplies will be used in daily office work. These are the items purchased and used by a business for its admin and office work.
Contrarily, inventory is used to manufacture goods and products. Thus, if you are in the business of manufacturing office supplies, your purchases will be recorded as inventory. Similarly, a wholesale or retail supplier would record these purchases as inventory.
The accounting treatment for office supplies as expense and inventory will vary. Inventory items are listed as assets on the balance sheet of a company. Office supplies can be classified into supplies, expense, or equipment as discussed above.