What are Supplies on Hand?
All businesses use small consumable items such as paper, pens, paperclips, light bulbs, hand towels etc. Normally a small amount of these items is kept available for immediate use, and this is referred to as supplies on hand. When an item is actually used in the business it becomes a supplies expense.
Supplies on hand are shown on the balance sheet of the business as a current asset as they are expected to be used within one year. They are normally shown just below inventories.
Supplies on Hand Purchases
When supplies are purchased they are recorded in the supplies on hand account. For example if a business purchases supplies of pens and stationery for 400, the journal entry to record this is as follows:
|Supplies on hand||400|
At the end of the accounting period, the supplies on hand are counted and the movement recorded as an expense item in the income statement.
Suppose in the above example, the beginning supplies on hand were 1,200, and the ending supplies on hand were 900, then the supplies expense for the period would be calculated as follows:
Supplies expense = Beginning supplies on hand + Purchases - Ending supplies on hand Supplies expense = 1,200 + 400 - 900 Supplies expense = 700
This supplies expense would be recorded with the following journal.
|Supplies on hand||700|
The supplies on hand is reduced by the amount utilized during the period, and the balance (900) is held as a current asset on the balance sheet of the business.
It should be noted that if the supplies on hand are insignificant and immaterial in relation to the financial statements as a whole, then they are sometimes not held on the balance sheet, but are taken as an expense to the income statement as purchased.
Difference Between Inventory and Supplies
The term inventory is used to refer to items which are held by the business for the purposes of resale in order to make a profit. Supplies on the other hand are not purchased with the intention of them being sold, they are purchased for use within the business.
For example, a business which sells shoes, will purchase and hold an inventory of shoes with the intention of selling them in the future. The same business will purchase consumable items such as stationery and hold them as supplies on hand for use within the business.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.