By Tara Kimball Updated March 09, 2019
When you buy supplies for your company, you record the expense in your supplies account. Once the supplies are used, they become an expense that must be listed on the income statement. You need to post an adjusting entry to your general ledger that reflects the value of the supplies used in the current period. At the end of the process, the balance in your supplies account should equal the value of the supplies you have left on hand, and the amount posted to the supplies expense will equal the cost of the supplies used.
Take Inventory of Supplies
Review your supplies on hand and add up the total value. For example, if you have 15 boxes of paperclips valued at $2 each, 500 pads of paper valued at $1 each and a case of highlighters valued at $40, your supplies on hand will equal $570. This is the amount your supplies account should reflect after the adjusting entry.
Determine Usage of Supplies
Calculate the amount of the adjustment, which is equal to the cost of the supplies used for the period. Look at the starting balance of the supplies account and subtract your current supplies on hand from that balance. For example, if the balance of your supplies account equals $790, the cost of the supplies used for the period equals $220.
Create Journal Entries
Create your journal entry to adjust the account balance. Debit the supplies expense account for the cost of the supplies used. Balance the entry by crediting your supplies account. For example, if you used $220 in supplies, debit the supplies expense for $220 and credit supplies for an equal amount.
General Ledger Posts
Post the entry to your general ledger and verify the balance of the supplies account. Record the current date on the printed copy of the entry. Attach supporting documentation for your supplies calculations and file your work with your other accounting papers for reference in the event of an audit.
Accurate Record Keeping
Keep accurate records by posting these adjusting entries during every closing cycle. At a minimum review your supplies on hand for quarterly financial reports and at year's end. However, if your business cycles through supplies more quickly, a monthly review may help you better understand supply use and forecast future expenditures.
Supplies Versus Cost of Goods Sold
The supplies account is only for more standard office supplies your business may use. If you ship goods to customers, the cost of bubble mailers, packing tape and other materials is not a supply expense even though they could be office supplies for other firms. When you ship to deliver products, the cost of materials is a cost of goods sold.
