Journal entry for supplies consumed

Introduction

In business, when we have a significant amount of supplies, we usually record the supplies that we have purchased as an asset instead of an expense. In this case, we need to make the journal entry for supplies consumed at the end of the period in order to record the consumed supplies as an expense and charge it to the income statement.

Of course, in order to make the journal entry for supplies consumed, we need to determine the amount consumed during the period first. We can do so by counting the remaining supplies on hand and comparing them to the beginning period. And then add any supplies bought during the period to get the final result.

The journal entry for supplies consumed will increase the total expenses on the income statement as the supplies consumed is the expense that our company has incurred during the period. Of course, this is because we do not record the supplies bought-in as an expense immediately.

However, if our company does not require a significant number of supplies and the amount of supplies that we consume every year is insignificant, we may record the supplies bought in as an expense immediately. If this is the case, there won’t be a need to make the journal entry for supplies consumed at the end of the period as we should have already recorded all of the supplies to the income statement at the time of purchase.

Journal entry for supplies consumed

We can make the journal entry for supplies consumed by debiting the supplies expense account and crediting the supplies account.

In this journal entry, the supplies expense is an income statement item where its normal balance is on the debit side. On the other hand, the supplies account is an asset account in which its normal balance is also on the debit side. Likewise, while total expenses on the income statement increase, total assets on the balance sheet decrease by the same amount in the journal entry for supplies consumed.

Supplies consumed example

For example, after counting the supplies on hand at the end of the period, we find that there are $500 supplies remaining. During the period, we have bought in the supplies amounting to $1,000 and the beginning supplies that we have are $1,500.

In this case, we can determine that we have consumed the $2,000 of supplies during the period.

Supplies consumed = $1,500 – $500 + $1,000 = $2,000

Likewise, we can make the journal entry for supplies consumed at the end of the accounting period by debiting the $2,000 into the supplies expense account and crediting this same amount into the supplies account.

In this journal entry, total expenses on the income statement increase by $2,000 while total assets on the balance sheet decrease by the same amount of $2,000 at the end of the accounting period.

Determine the supplies consumed

We usually determine the supplies consumed by counting the remaining supplies on hand at the end of the period and deducting the counting result with the beginning balance of supplies. If there are any supplies bought during the period, we will add them to our result.

Likewise, we can have the formula of the supplies consumed during the period as below:

Supplies consumed = Beginning supplies – Ending supplies + Bought-in supplies

As in the example, we have determined the $2,000 supplies consumed during the period by using the beginning supplies of $1,500 to deduct the ending supplies of $500 and then adding a $1,000 bought-in supplies to get the final result.

Supplies consumed = $1,500 – $500 + $1,000 = $2,000

Record the supplies expense immediately upon purchase

As mentioned, we may record the supplies expense to the income statement immediately if the amount of supplies in our company is considered insignificant. This may happen for a company that does not require a lot of office supplies in its business operation.

If that is the case, we can record the supplies expense immediately upon purchase by debiting the supplies expense account and crediting the cash account or accounts payable.

Record supplies expense upon purchase:

Making the journal entry this way is quite simple as we charge the purchase of supplies to the income statement immediately without the need to record to an asset first. In this case, we do not need to determine and make the journal entry for the supplies consumed at the end of the period.

However, it is useful to note that if the amount of supplies we use in our business operation is material or significant, we should not record the supplies expense immediately upon purchase. After all, we have not consumed or used the supplies yet, and recording expenses immediately this way will overstate the expenses on the income statement for the period.