Are Office Supplies A Current Asset? Perfect Information For You!

A company’s current asset is a short-term investment that has a shelf life of one year. Short-term liabilities, which must be paid within a year, are generally met by current assets, which are often utilized to cover immediate expenses. So that the company doesn’t run into liquidity concerns, current assets are critical. In the balance sheet of a business, assets are listed alongside equity and liabilities.

Because they cannot be converted to cash even if they have a monetary worth, intangible assets like goodwill, intellectual property, trademarks, and copyrights are not considered current assets and so are not included in this category.

Are Supplies an Expense?

When a business utilizes a supply, it becomes an expense. Alternatively, supplies can be treated as an expense rather than a current asset in another scenario. Supplies Expense can be debited at the time of purchase, if the value of the supplies is not regarded substantial and hence would not affect the business’s financial results. Using this method, the supplies are instantly categorized as a business expense at the time of purchase. Despite the fact that it is against accepted accounting principles, companies can get away with it because of a concept called as materiality in accounting.

What is Materiality?

As a general rule, a standard can be ignored if it has no major impact on the financial statements of the company and, as a result, does not mislead those who are looking at such financial accounts. Accounting standards are not required to be followed if an item is deemed irrelevant by widely accepted accounting principles.

To comply with SEC guidelines issued in 1999, every item comprising more than 5% of a company’s total assets should be classified as significant and shown separately on its balance sheet. When it comes to inventory, you should record it as a current asset on your balance sheet as long as it represents at least 5% of your overall assets.

It’s up to you to decide when something should be labeled irrelevant; there is no set rule for doing so. If you have less than five percent of your entire assets in the form of these items, you can still consider them important. A low-value item, for example, should be regarded material no matter how small its worth may be if it affects a company’s net profit or loss.

Different kinds of current assets are:

1. Equivalents of cash and cash
2. Securities that can be sold quickly and at a profit
3. Invoices Paid Up Front
4. Accrued Revenue
5. Inventory

To find out if office supplies are still valuable, let’s do some research.

To give us a taste of what we can expect:

• Do office supplies count as current assets in the eyes of the accounting system?
• What is the meaning of the accounting principle of materiality?
• Do You Know How to Organize Your Office’s Expenses?
• Office Expenses Sorted by Type
• An example of how to organize office supplies, costs, and equipment on your balance sheet
• In order to properly categorize your office supplies, here are some guidelines:
• Keeping track of office supply costs
• Is the purchase of office supplies a credit or a debit?
• A Distinction Between Office Supplies and Stock

Do office supplies count as current assets in the eyes of the accounting system?

A company’s current assets include all of its office supplies, including corporate office supplies. Consumables are immediately converted to charges or expenses when they run out. Because of this, office supplies cannot be regarded as current assets because they don’t have a long-term value. They depreciate in value over time and may eventually become a liability or expense. Office supplies can be regarded as liquid or current assets if they are not used, but if they are, they constitute an expense.

A company’s financial statements are not affected by the value of stationery or other accessories, for example. This enables the company to deduct the cost of the item from the office supply expense account when the item is bought. A violation of accounting standards may be possible, but “materiality” dictates that it still makes sense to do so.

What is Materiality in relation to an accounting principle?

You or an authorized person in your firm can circumvent the accounting policy if any expense/act/supply has a small impact on the company’s balance sheet or financial statements.

If no one misunderstands or causes a review of the organization, the inclusion of office supplies can be reported as an expense report according to the definition of this resolution as well. You don’t have to adhere to standard accounting practices when purchasing office supplies because of this wide-ranging purpose.

All office equipment that accounts for more than 5% of an organization’s total assets is considered “material” and must be reported separately on the balance sheet by the US Securities and Exchange Commission of 1999. Office supplies should be recorded as current assets on a company’s balance sheet if they are worth at least 5% of the company’s total assets.

Subjects deemed unimportant by the law are exempt from regulation. You must therefore rely on your own good sense when evaluating each instance.

How Should You Categorise Office Expenses?

It’s not uncommon for office supplies to be viewed as a cost. However, dealing with and categorizing office expenses, supplies, and equipment in financial accounting might be a little tricky. Learn how to categorize them correctly.

Despite the fact that office supplies fall under the asset category, which means that they have a value of their own, they are usually purchased for use. Because of this, they are more of a long-term liability than a current asset for the organization.

When it comes to accounting, there are several exceptions to this rule. The exceptions will be handled in a different way, since they will be classified as either office expenses or office equipment, depending on their purpose. We’ll go over the different types of expenses and how to account for them on your financial statements in this section.

It’s not uncommon for office supplies to be viewed as a cost. Classifying office supplies, office expenses, and office equipment requires some caution. However, because they are purchased for personal use rather than to be used in the company, office supplies are considered an expense rather than an asset. The fact that we’re talking about accounting means there are certain exceptions to this rule. Office supplies may be classified as either office expenses or office equipment in the event of such exceptions. Let’s take a look at how this works:

Classification of Office Expenses

Learn how to categorize all three company costs by looking at them.

1. Office supplies

You and your employees will need a few basic items to get the job done, such as office supplies. Buying pens and pencils, ink, staples, paper, file binders, paper clips, and markers, all of which are consumables, is a common practice in the office supply industry. Despite the fact that office supplies are assets because of their long-term value, they are not considered or recorded as such. Office supplies should not be included in inventory costs. Inventory is never considered a liability because it is a non-perishable resource.

You can classify office supplies as an asset if you acquire a large amount of them, but in most circumstances, the supplies are purchased for a few weeks or months and don’t need to be classified as an asset.

2. Office Expenses

Expenses, including office supplies, are typically classified as liabilities rather than assets. Intangible costs including cleaning services, software subscriptions, technology upgrades, and website maintenance are common in the workplace.

3. Office equipment

While office supplies and expenses are instantly recognized as expenses, office equipment is often accounted for as an asset and depreciated over a period of time. All electronic equipment a corporation owns, including desktop and laptop computers, as well as tangible office equipment such as fax machines, printers, and copiers, is included in office equipment. They can be considered long-term investments.

How to categorize office supplies, office expenses, and office equipment on your balance sheet

You must adhere to a few guidelines while cataloging supplies:

• Take a look at the quality of the items you’ve purchased. Expenses that are less than 5% of the company’s total assets will be deemed assets, not expenses, according to the materiality protocol
• It is important to look at each purchase of office supplies, office equipment, and office expenses as an individual transaction.

Let us understand this rule with the help of a hypothetical example:

You own a business, and you purchased the following:

• Paper & Pencils: 100 Rupees
• 20 rupees for a pack of 20 sheets
• Rs. 80 for Staples
• Paper File Folders: Rs.10 each
• 50 rupees for an antivirus program
• Rs. 150 for cleaning supplies
• Rs. 4000 for a brand-new pc
• Rs. 2000 for a new printer

To begin, each expense must be classified separately.

1. Office Supplies

Office supplies are what you’ll be charged for these costs:

• Paper & Pencils: 100 Rupees
• 20 rupees for a pack of 20 sheets
• Rs. 80 for Staples
• Paper File Folders: Rs.10 each

The total is Rs.210, which will be reflected in the books as purchases in accounts payable and subsequently as an adjustment to these accounts payable once the bill has been paid in whole.

2. Office Expenses

These purchases will be categorized as business expenditures:.

• 50 rupees for an antivirus program
• Rs. 150 for cleaning supplies

If Rs 200 is paid right away, it doesn’t need to be recorded in accounts payable, hence it will appear on the financial statements as office costs.

3. Office Equipment

These purchases will be categorized as business expenditures:.

• Rs. 4000 for a brand-new pc
• Rs. 2000 for a new printer

As a result, it is your decision whether to classify both of these expenses as assets or apply the materiality rule and expense the lower-value printer.

Option 1: You can add Rs. 6000 worth of office supplies to your balance sheet as an asset.

Option 2 – Due to the printer’s value, you can amend your balance sheet with simply Rs. 4000 as an asset and the new computer expense (less than 5 percent )

The depreciation value of fixed assets must be taken into account and documented in this scenario. If we depreciate Rs. 1200 over time, we can use the straight-line technique to arrive at this conclusion. A depreciation expense will be recorded for this amount on the company’s balance sheet.

The bottom line is that if office equipment is considered an asset, the purchase price and subsequent depreciation must be reported in the books.

Best practices for categorizing office supplies appropriately

1. If it’s a consumable item, such as pens, paper, or pencils, you’ll want to double-check. All of these purchases must be recorded as costs at the time of purchase unless you plan to keep them for a year.
2. Calculate how often it will be used. Consumables can be sorted based on how rapidly they’ve been depleted. It is possible to record monthly spending as an office expense and annual expenses (which will be used in the next year) as a prepaid expense, and then to bill for these monthly expenses.
3. To determine if a piece of office equipment is a fixed asset or an expense, look at the cost and the materiality limits rule.
4. Consider the purchase’s influence on the company’s financial accounts, and make sure it’s an asset if it has a big impact.

Accounting for office supplies

Expenses for office supplies must be equivalent to the current asset balance categorized as Supplies or Supplies on Hand at the end of the billing cycle.

The cost of office supplies utilized is represented as Supplies Expense in the income statement for a specific period. The cost of an office supply will be deducted from your office supply budget.

The adjustment will be recorded in the Supplies Expense account at the conclusion of the accounting period, and the account balance is to reflect the amount on hand.

Should Office Supplies be treated as a Credit or Debit?

Every financial transaction necessitates the use of two separate accounts for the purposes of compiling financial statements and bookkeeping. Simply debit the office supply account with the item as a cost if the stuff is minor and not part of a liquid asset. You’ll get credit for the materials if you pay with cash.

Difference Between Office Supplies and Inventory

To run a business and grow sales, a firm needs office supplies, while inventory is the product that a company makes or acquires for sale. There are tax consequences to properly classifying consumables and inventories.

Office supplies are subject to sales tax, but inventory is exempt. This is due to the fact that retail sales are only subject to a single tax. As a result, when you sell an item to a customer, you are taxed on that sale. As an end-user, you must pay sales tax on any office goods you purchase, such as stationery items.

4 best practices for correctly classifying your office supplies

There are certain best practices you may follow if you’re still unsure about how to effectively classify your office supplies.

1. Decide if it’s consumable

Everything from paper to pens to pencils is disposable. When purchasing these things, you should depreciate them at the moment of purchase rather than depreciating them over a period of time.

2. Determine how quickly it will be used

To define something as a consumable, you need consider how quickly you’ll use it up before classifying it. Cleaning services that are paid monthly, for example, should be listed as an office expense. The only exception is prepaid cleaning services, which must be recorded as an expense and expensed monthly, even if purchased and paid for in advance.

3. Consider the cost

Equipment and machinery that costs less than $2,500 can be deducted in full by the IRS. However, you still have the option of depreciating the item over a longer length of time if you like. Small firms frequently set an internal cut-off point to help them decide whether or not an expense should be recorded immediately.

4. Materiality

Purchasing an asset is required if the purchase has a significant impact on your financial accounts. When a corporation has less assets, the threshold for purchases will be lower than when a company has more assets.

How to classify office supplies, office expenses, and office equipment on financial statements

Consider the item’s materiality while determining its classification. This means that you can just expense an item that doesn’t have a significant impact on your financial statements. For example, if an expense accounts for more than 5% of your total assets, it should instead be recognized as an asset.

This is the quickest and most efficient way to categorize office supplies and expenses, as well as equipment.

The following purchases were made by Tim’s company in October 2020:

• $5.99 for a 12-pack of pens
• For $15.95, you get three reams of paper.
• $6.50 gets you two boxes of staples.
• Folders cost $4.25 a box.
• A $25 monthly fee for a new accounting software subscription
• $100 for a deep-cleaning office cleaning crew
• For $1,095 you may get a new color laser printer.
• $3,000 for a new copier

Let’s begin by categorizing each expense.

Office supplies

Office supplies may be categorized quickly and easily. In light of the transactions above, the following are considered office supplies:.

• Pens cost $5.99 each.
• $15.95 worth of paper
• For only $6.50, you can get Staples.
• Folders for $4.25 each

Each of these items costs $32.69 and would be documented as follows in your bookkeeping software or on paper:

If you bought these materials on credit, you’d have to put them in accounts payable first.

When you pay the bill, you’ll need to make an adjustment to your payables account.

Office expenses

The following transactions involving Tim’s office are to be considered office expenses:

• $25 a month for software
• For $150, you can have the office thoroughly cleaned.

There was no need to record these expenses in accounts payable because they were paid immediately.

Office equipment

Tim purchased two pieces of office equipment.

1. Printer for $1,095 in color
2. A copier for $3,000.00

Alternatively, Tim can depreciate the printer immediately because it costs less than $2,500, and merely record the copier as an asset. He decides to bill the printer. The acquisition of a printer necessitates this journal entry.

As a fixed asset, Tim’s copier must still be included in the company’s financial records.

Tim will have to record the depreciation expense for the copier as well. Tim calculates that the copier’s salvage value is $300 and that it will be depreciated over three years using the straight-line technique.

Depreciation of $900 per year is the result of subtracting $300 from $3,000 and multiplying by three.

$900 divided by 12 equals a monthly depreciation cost of $75.

Be sure to include both the purchase price and the depreciation cost when registering a transaction as an asset.

Are Supplies Credit or Debit?

Every financial activity in the world of double-entry bookkeeping impacts at least two accounts. Simply debiting your Office Supplies account for supplies that aren’t significant or required to be classified as current assets is all that is necessary in the case of office supply purchases. If you paid for the materials in cash, you would then be credited to your Cash account.

What Is the Difference Between Supplies and Inventory?

To run a business and generate income, a firm needs supplies, while inventory refers to products the company has created or purchased and is ready for sale. The correct classification of supply and inventory has tax ramifications, so be sure to do so.

Inventories are exempt from sales tax, whereas supply are subject to it. Retailers often only impose a single tax on goods, therefore this is why. Because of this, in the case of inventory, the things will be taxed when they are sold to your clients. However, because you are the final consumer when purchasing goods for your business, you must pay sales tax on the products.

FAQs

Are office supplies current or fixed assets?

As long as they aren’t used, office supplies go into the current assets section of the balance sheet. They can, however, be immediately reported as an expense instead if their cost is judged inconsequential.

Why are office supplies current assets?

It is common for supplies to be billed to the company’s general ledger as soon as they are purchased. This is due to the fact that the expense of tracking them as an asset for an extended length of time is so minimal. Once supplies are tracked as an asset, they are normally regarded as a current asset if the choice is taken.

Is office supplies an expense or asset?

On most cases, office expenses, such as paper and ink, are reported as a liability rather than an asset in the balance sheet. Janitorial services, software subscriptions, office maintenance, and even website maintenance are all examples of the intangible costs associated with running a business.

Is office supplies an unused current asset?

As long as they’re projected to be used within a year, unused office supplies are a current asset, according to accounting standards.

Is supplies a fixed asset?

If you have a physical asset, it will be included as PP&E on your balance sheet. Among the many reasons why companies invest in fixed assets is to produce or deliver goods or services.

Is supplies inventory an asset?

Unsold inventory and supplies are considered assets. As part of your overhead expenses, you record the purchase of office supplies and materials for manufacturing or production as part of your budget.

Are supplies included in the balance sheet?

At any given moment, the cost of the supplies that are currently on hand is the current asset. Following Inventory, this account is often mentioned on the balance sheet.

Is office equipment an asset on a balance sheet?

The balance sheet classifies office equipment as an asset. These purchases are long-term investments that will devalue over time. … This is due to the fact that most supplies are used up within a year after being purchased.

What are office supplies in accounting?

Supplies such as pens, paper, and printer toner count as “office supplies” for the purposes of the Internal Revenue Service (IRS).

Are supplies a liquid asset?

There is a list of current assets arranged in the order in which they are likely to produce cash. The order of liquidity is a term used to describe this. Cash is mentioned first since it is the most liquid asset. Amounts owed, accounts receivable, inventory, supplies, and prepaid expenses are the next items in line after cash.

Are office supplies prepaid expenses?

As an example of a pre-paid expense that does not appear on the books of another company as unearned revenue, the cost of office supplies In the absence of adjusting entries showing the expiration or consumption of pre-paid expenses, financial statements inflate assets, inflate net income, and inflate expenses.

Where do office supplies go on the balance sheet?

The balance in a current asset account, such as Supplies or Supplies on Hand, should represent the cost of office supplies on hand at the end of an accounting period. Supplies Expense on the income statement should include the cost of office supplies that were used up throughout the accounting period.

What is the difference between office supplies and office expenses?

The costs of running a business are reflected in general office expenses. It is common practice to have to replenish or replace office supplies on a regular basis. If you’re running a small business, Inline Accounting recommends that you carry printer ink and toner; coffee; staples; pens; water; and stationery, including paper invoices.

Is office furniture an asset?

In addition to being an essential business expense, office furniture is also considered an investment. Office furniture is eligible for a 100 percent bonus depreciation write-off because it is considered an asset.

Are supplies non current assets?

Supplies are often regarded as current assets until they are consumed. Expenses are incurred whenever supplies have been used.. If a supply’s dollar value is significant, it can be called a current asset.

What is the difference between office supplies and office equipment?

A key distinction to remember between company supplies and business equipment is that supplies are short-term or current assets, whereas equipment is long-term or capital assets. Long-term assets, on the other hand, are those that are used over a longer period of time.

Conclusion

For at least a year, a corporation can reap the benefits of current assets, such as high-end office supplies, by adding them to the current side of their balance sheet. Even if the supplies have no monetary worth, there are no hard and fast rules about where to put them on your balance sheet. For the sake of clarity, we recommend that you input these data according to the conventional process, which will aid in the organization of taxes and the like.