How to Record Adjusting Entry for Supplies with Examples
Most businesses in existence purchase supplies for their day-to-day operation. These items are helpful in driving employee efficiency and the company’s income. Making an adjusting entry for supplies often occurs at the end of the accounting period before a company makes ready their financial statements. Depending on the company, adjusting entries for supplies could be made at the end of every week or month, although monthly adjusting entries are more common. The adjusting entries are made to track the supplies that have been used and those that are still remaining.
This is done to ensure correct reporting of the company’s supplies which are still assets on the balance sheet and those have become expenses on the income statement. Before we discuss the adjusting entry for supplies further, let us clarify the meaning of supplies.
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What are supplies?
Since supplies are generally items that companies use on a daily basis, most companies buy their supplies in bulk instead of buying them in little quantities regularly. This is done to reduce the cost of supplies since a number of companies offer discounts for bulk purchases. To record and keep track of purchases, companies usually make journal entries for all transactions that have been carried out. In the case of the purchase of supplies, the amount spent on the purchase plays a vital role in how the supplies transaction is recorded.
If the amount spent is insignificant such that it has no impact on the company’s financial statements, then the supplies are directly recorded to the supplies expense account and there is usually no need to make an adjusting entry for supplies in this case. If on the other hand, the cost is significant and can distort the true financial position of the company, then, the purchase is recorded as an asset in the supplies account and gets expensed as the items get used up. In this latter case, an adjusting entry for supplies is necessary to keep track of what has been used and what is still at hand.
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Making adjusting entries for supplies
When companies purchase supplies in bulk, they have to record it as an asset in their supplies account immediately after the purchase. As the supplies get used up, an adjusting entry for supplies is made in the company’s general ledger to reflect the reduction in the number of supplies at hand. When this adjusting entry is done accurately, the number of supplies remaining will be equivalent to the dollar amount recorded in the supplies account while the number of supplies that have been used will be equivalent to the dollar amount in the supplies expense account. Let us look at how the adjusting entry for supplies can be made.
Review your supplies
Determine used supplies
Make the adjusting entry
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What is the entry to adjust for the cost of supplies?
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Examples of adjusting entry for supplies
Supplies normally comprise items business use on a regular basis such as sticky notes, binder clips, coffee, receipt paper, markers, envelope, etc. When these purchases are made in bulk, they get considered as an asset and get recorded first as supplies on hand. The record made to track the transaction is known as a journal entry. The journal entry for supplies purchase involves two accounts; the supplies on hand or supplies account and the accounts payable or the cash account.
This usually involves a debit to the former account and a credit to the latter account. If the purchase was a cash purchase, it will be recorded as a debit to the supplies account and a credit to the cash account. If it is a credit purchase, then it will involve a debit to the supplies account and a credit to accounts payable. The journal entry to record the purchase of supplies will be similar to the one below:
| Date | Account | Debit | Credit |
|---|---|---|---|
| DD/MM/YYYY | Supplies or supplies on hand | $$ | |
| Accounts payable or cash | $$ |
As the supplies get used up, an adjusting entry for supplies is made to account for the reduction in the supplies on hand. This adjusting entry for supplies is normally made at the end of each operating cycle to ensure that the supplies on hand account are up to date and accurately reflect the supplies that are unused. Most companies make monthly adjusting entries for supplies so as to enable them to have a clear record at the end of each quarter and year when the financial reports are compiled.
The adjusting entry for supplies involves two accounts; the supplies expense account and the supplies on hand account. The supplies expense account gets debited while the supplies or supplies on hand account gets credited. The debit to the supplies expense account indicates an increase in the number of supplies that have been used while the credit to the supplies on hand account indicates a reduction in the number of supplies at hand. The adjusting entry for supplies is as seen in the table below:
| Date | Account | Debit | Credit |
|---|---|---|---|
| DD/MM/YYYY | Supplies expense | $$ | |
| Supplies or supplies on hand | $$ |
Example of adjusting entry for supplies
Assuming Alphabet purchased supplies worth $7,000 at the beginning of the year 2023. After reviewing their supply at the end of February, they discovered that $600 worth of supplies have been used up within the month. To record this, the company will make the following adjusting entry for supplies to reflect the reduction in supplies.
| Date | Account | Debit | Credit |
|---|---|---|---|
| 28/2/2023 | Supplies expense | $600 | |
| Supplies on hand | $600 |
The debit to supplies expense indicates an increase of $600 in the supplies expense account while the credit to the supplies on hand account indicates a reduction of $600 in the supplies on hand.
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What is the journal entry when you record supplies on account?
| Date | Account | Debit | Credit |
|---|---|---|---|
| DD/MM/YYYY | Supplies or supplies on hand | $$ | |
| Accounts payable | $$ |
However, if the cost of the supplies is insignificant or the supplies will be used within one operating cycle, then the journal entry for the supplies purchased on account will involve a debit to supplies expense and a credit to the accounts payable as shown in the following table.
| Date | Account | Debit | Credit |
|---|---|---|---|
| DD/MM/YYYY | Supplies expense | $$ | |
| Accounts payable | $$ |
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Conclusion
The adjusting entry for supplies is an important journal entry made at the end of each operating cycle to accurately reflect the supplies that are unused and those that were used within the period under consideration. This adjusting entry normally involves the supplies expense account and the supplies or supplies on hand account. The supplies expense account records the used supplies while the supplies account records the supplies on hand. The adjusting entry for supplies transfers the used supplies from the supplies on hand account to the supplies expense account. This is done by debiting the supplies expense account and crediting the supplies on hand account.
Supplies on hand get reflected in a company’s balance sheet as part of its current assets while the supplies that have been used up are reflected in the company’s income statement as expenses. Thus making a timely and correct adjusting entry for supplies is a key component for having good financial statements that are not impaired by inaccurate information. It is important to note that the adjusting entry for supplies only occurs when the company makes bulk purchases of supplies, thereby having to make timely adjusting entries to the supplies account to track the usage of the supplies.
In a situation where the supplies are used immediately after purchase or the cost of purchase will not impair the company’s financial statements, then, the supplies get expensed immediately and in such as case, there will be no need for an adjusting entry for supplies.
