Supplies

Supplies help run the daily operations of the business.

Scenario: On March 1st, you purchase $100 worth of supplies for business operations. The journal entry representing the purchase looks like so:

TransactionDebitCredit
Supplies$100
     Cash$100

On March 31st, you count your supplies and realize you have $80 worth of supplies left. Write the adjusting entry for supply usage during March.

The blue underlined text signals...

  • Write the adjusting entry for supply usage during March. ➡️ We're going to expense this supply usage through Supplies Expense.
  • We're using supplies up during March... ➡️ This means we'll take them out of the Supplies account.

Beginning Balance = $100
Ending Balance = $80

Supplies Usage = Beginning Balance - Ending Balance
Supplies Usage = $100 - $80
Supplies Usage = $20

TransactionDebitCredit
Supplies Expense$20
     ??????

The reason is...

  • We have incurred an expense (+) by using up supplies as a cost of running our business.
  • This is represented through Supplies Expense.
  • Which is an expense account, and therefore has a normal debit balance.
  • So, to increase it by $20, we'll debit it.

ACCRUAL BASIS REMINDER: Before moving into the next period (April), we must record the expense of supply usage in the current period (March) to follow accrual basis accounting!

TransactionDebitCredit
Supplies Expense$20
     Supplies$20

The reason is...

  • We have used up (-) supplies.
  • This is represented through Supplies.
  • Which is an asset account, and therefore has a normal debit balance.
  • So, to decrease it by $20, we'll credit it.
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