Is supplies an asset? In order to have correct financial statements, businesses need to keep track of various items and transactions that are used by or carried out in the business. These records are usually made using journal entries in different ledgers such as the general ledger. When keeping track of transactions and items, it is important that the record made captures it in the right category as either income or expenditure or more accurately, as asset, liability, or equity. Thus, in order for us to effectively answer whether supplies are an asset, let us understand what both supplies and assets mean.
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What are supplies?
Supplies refer to items that businesses use in the course of their daily operations. These items are often used by businesses to drive revenue or by their employees to perform their daily tasks. Supplies are usually consumables that have a finite life. This means supplies are items that are purchased to be used within a specified time frame.
Supplies refer to the materials, equipment, or resources that are needed to carry out a particular activity or task. Supplies are mostly physical items like office stationery or tools. They can also be intangible resources like knowledge, skills, or software. Supplies are essential in many fields, including business, healthcare, education, construction, and manufacturing. Without the necessary supplies, it can be challenging or impossible to perform tasks effectively and efficiently. Proper management of supplies is crucial to ensure that they are available when needed, that they are used efficiently, and that costs are minimized.
The amount spent on supplies generally determines how the supplies will be recorded. If the cost of the supplies is significant, such supplies will be recorded twice; first as in the supplies account when the supplies were purchased and later, in the supplies expense account when the supplies are used up. If however, the cost is insignificant, then the supplies get directly recorded to the supplies expense account immediately after they are bought. In this context, a significant amount refers to an amount that can impact the financial statements of a business whereas an insignificant amount is one that is immaterial as it would not have a considerable impact on the company’s financial statements.
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What are assets?
Assets refer to resources owned by individuals, corporate entities, or countries that provide economic value to the owners. These resources could be cash, property, equipment, or any other resource that either aids in generating more income or reducing expenses. This means that assets aid businesses to settle their liabilities and increase their equity. Assets are generally gotten as a result of past events or transactions and can bring direct or indirect benefits to their owners.
Assets are one of the components of the accounting equation along with liabilities and equity. They are recorded on the statement of financial position of businesses and are usually grouped into current and noncurrent assets based on the ease of their liquidity. Assets that can be liquified within a fiscal year are current assets whereas those that require over one fiscal year to be liquified are noncurrent assets.
Current assets are expected to be sold, consumed, or exhausted through a company’s operations within an operating cycle. The current asset is useful when calculating a company’s current ratio which is often used by creditors to ascertain the ability of a company to meet up with its short-term obligations. Common examples of current assets include cash and cash equivalents, inventory, accounts receivable and prepaid expenses.
Noncurrent assets take a longer time to sell, usually over one operating cycle. They include resources such as property, land, machinery, fixtures, and equipment. In a lot of instances, companies use them as collateral for loans. Both current and noncurrent assets are reported on the balance sheet as part of the assets of a company. Now that we have understood what supplies and assets mean, let us answer the question as to whether supplies are an asset.
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Is supplies an asset?
Yes, supplies can be considered an asset before it gets used up. In accounting, supplies are typically classified as current assets on a company’s balance sheet. This is because most supplies get used up within one fiscal year. As with all assets, supplies are recorded at their cost, which is the amount paid to acquire them. The cost of supplies is typically expensed as they are used up or consumed by the company.
This means that the value of supplies on the balance sheet will decrease over time as they are used until they are eventually replenished or replaced. Supplies are items that a company uses in its operations but are not intended for resale. Examples of supplies include office stationery, cleaning supplies, and packaging materials. These items have value to the company because they are necessary for the business to function and generate revenue.
Although supplies are commonly classified as current assets, there are instances where they could appear as non-current assets. This happens in a case where a company purchases supplies that will last them more than one fiscal year. Another condition that may affect the classification of supplies as assets is the cost of the supplies. If the cost of the supplies is immaterial such that its recordation will not significantly impact the company’s financial statements and mislead investors, then, the cost gets recorded as supplies expense which is an expense account.
If however, the cost is significant, then, it will be recorded as supplies which is an asset account, and subsequently transferred to the supplies expense account once it is used up. Once supplies get used up, they no longer appear as assets on the company’s balance sheet, instead, they get recorded along with other expenses on the company’s income statement.
Where is supplies on the balance sheet?
When companies purchase supplies, it is recorded in the supplies account and is considered an asset. On the balance sheet, supplies itself is not a line item, instead, it is combined with other company supplies and merchandise inventory and recorded on the balance sheet as inventories. Hence, supplies on the balance sheet appear in the assets section under current assets as inventories.
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Example of supplies in accounting
- Cleaning supplies
- Office supplies
- Shipping supplies
The supplies a company purchases will vary depending on what kind of business they operate. However, cleaning, office, and shipping supplies are the three most common supplies that companies use. Let us look at each of these supplies below.
Cleaning supplies are essential for maintaining a healthy and hygienic business environment. They help to reduce the risk of spreading infectious diseases and improve the overall cleanliness and appearance of the office so as to provide a safe and comfortable working atmosphere for employees and a welcoming atmosphere for customers. Some common cleaning supplies include:
- Disinfectants and sanitizers: These products kill or reduce the growth of bacteria and viruses on surfaces and objects, which helps to prevent the spread of disease.
- All-purpose cleaners: These products are used to clean a variety of surfaces, such as walls, and countertops.
- Toiletries: These are products that are useful in the restroom such as soap, toilet paper, paper towels, and disinfecting wipes.
- Glass cleaners: These products are used to clean windows, mirrors, and other glass surfaces.
- Furniture polish: These products are used to clean and polish wood furniture.
- Floor cleaners: These products are used to clean and maintain different types of flooring, such as carpet, tile, and hardwood.
- Brushes and sponges: These products are used to scrub and clean surfaces, such as sinks, toilets, and showers.
- Gloves and other personal protective equipment (PPE): These products are used to protect the user from coming into contact with harmful chemicals or pathogens.
Companies that have physical offices normally purchase office supplies that enable workers to perform their duties more easily and effectively. Office supplies are items that are commonly used in an office setting to support the day-to-day operations of the business. These supplies are essential to keeping a business running smoothly and efficiently. They help employees stay organized, communicate effectively, and complete their work tasks in a timely and efficient manner. These items can include a wide range of products, such as:
- Paper products: This includes items like printer paper, envelopes, notepads, sticky notes, and index cards.
- Writing instruments: This includes pens, pencils, highlighters, markers, and other writing tools.
- Desk accessories: This includes items like staplers, paper clips, binder clips, tape dispensers, rulers, and scissors.
- Filing and storage: This includes folders, binders, file boxes, and other organizational tools.
- Office machines and equipment: This includes items like printers, copiers, fax machines, scanners, and shredders.
- Technology products: This includes items like computers, monitors, keyboards, and mice.
Shipping supplies are essential for businesses that need to transport products to customers, distributors, other businesses, or other locations. These supplies are materials and products used for packaging and transporting goods from one location to another. Shipping supplies are designed to protect the goods during transit and ensure that they arrive at their destination in good condition. Proper packaging and labeling can help ensure that goods arrive at their destination on time and in good condition, which can help to build customer satisfaction and loyalty. Some common shipping supplies include:
- Boxes: Cardboard boxes are commonly used for shipping and come in various sizes and shapes to accommodate different products.
- Envelopes: Shipping envelopes are used to ship smaller items like documents, photos, and small parts.
- Bubble wrap: This is a packaging material that provides cushioning and protection to fragile items during shipping.
- Packing peanuts: These are small foam pieces used to fill empty spaces in packages to prevent items from shifting during transport.
- Tape: Shipping tape is used to seal boxes and ensure that they remain closed during transit.
- Labels: Shipping labels are used to identify the sender and receiver of the package, as well as to provide other necessary information, such as shipping instructions.
- Pallets: Pallets are used for larger shipments and are designed to support heavy loads and facilitate the movement of goods with a forklift.
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Is supplies an asset on a balance sheet?
Yes, supplies are an asset on the balance sheet before it gets used up. It is normally recorded under current assets as part of the company’s inventory.
Is supplies an asset? Based on our discussion, we can conclude that supplies are an asset when it has not yet been used. Supplies that have not yet been used up and whose dollar value could impact the company’s financial statements are recorded as current assets on the company’s balance sheet. Any part of the supplies that get used up is first recorded in the supplies expense account and appears later on in the company’s income statement as an expense. Hence, unused supplies are assets while used supplies are expenses.
The cost of the supplies also plays a key role in its recording process because it can impact the company’s financial statements such as the income statement, balance sheet, and statement of cash flows. When the cost is significant, it gets recorded as assets first before it is expensed but in a situation where the cost is insignificant, it gets directly expensed. Hence, if supplies are not properly recorded, it could distort the information available to investors by giving them an incorrect impression of the company’s financial standing.
Video: Is supplies an asset?
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