How do I account for supplies?

Supplies are incidental items that are expected to be consumed in the near future.

The normal accounting for supplies is to charge them to expense when you purchase them, using this entry:

	Debit	Credit
Supplies expense	xxx
Accounts payable		xxx

If the cost of the supplies that you have purchased and not yet consumed is significant (see the materiality principle), then you can instead record them as an asset, using the following entry:

	Debit	Credit
Supplies on hand	xxx
Accounts payable		xxx

By using this later approach, the supplies will appear on your balance sheet as a current asset, until you use them and charge them to expense with this entry:

	Debit	Credit
Supplies expense	xxx
Supplies on hand		xxx

Thus, consuming supplies converts the supplies asset into an expense.

Despite the temptation to record supplies as an asset, it is generally much easier to record supplies as an expense as soon as you purchase them, since you can thereby avoid tracking the amount and cost of supplies on hand. Also, charging supplies to expense allows you to avoid the fees charged by external auditors who would otherwise want to audit the supplies on hand asset account.