If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.
While they certainly fall into the asset category, which is anything of value that you own, office supplies are purchased for consumption, making them more of a business expense than a current asset.
But because this involves accounting, there are exceptions to that rule. When there is an exception, it would likely fall into the office expense or office equipment category. We’ll explain a little bit about each of these categories and how to properly classify these expenses on your financial statements.
Managing an office seems like a pretty straightforward job. But things can be confusing when you’re trying to classify regular office expenses properly. For example, let’s say Sara buys staplers, staples, paper for the copier, and a laptop computer for one of her employees. Sara would need to record the cost of the staplers, staples, and paper as an office supplies expense, while the laptop would be considered an asset.
Introducing office expenses makes this process even more confusing. What makes an office expense different from office supplies? Is a calculator considered office supplies or office equipment? Let’s take a look at all three business expense categories and how to classify them properly.
If you purchase office supplies in bulk, you can classify them as an asset and expense them as they’re used. But, in most cases, offices buy enough supplies to last them for a few weeks or a month, so classifying them as an asset is not necessary.
When classifying supplies, you’ll need to consider the materiality of the item purchased. In other words, if the item does not have a large impact on your financial statements, you can choose to simply expense it. The materiality principle states that if an expense represents more than 5% of your total assets, it should be recorded as an asset rather than an expense.
The easiest way to classify office supplies, expenses, and equipment is to look at each purchase separately and decide how it should be classified.
For example, Tim’s company made the following purchases in October 2020:
Now let’s classify each expense in the proper category.
Classifying office supplies is easy. Looking at the above transactions, the following would be considered office supplies:
The total of these purchases is $32.69 and would be recorded in your accounting software or manually in your general ledger like this:
Date | Account | Debit | Credit |
---|---|---|---|
10-31-2020 | Office Supplies | $32.69 | |
10-31-2020 | Cash | $32.69 |
If these supplies were purchased on account, you’d have to first record the purchases in accounts payable.
Date | Account | Debit | Credit |
---|---|---|---|
10-31-2020 | Office Supplies | $32.69 | |
10-31-2020 | Accounts Payable | $32.69 |
You would then adjust your payables account when you pay the bill.
Date | Account | Debit | Credit |
---|---|---|---|
11-30-2020 | Accounts Payable | $32.69 | |
11-30-2020 | Cash | $32.69 |
Tim’s transactions that need to be classified as office expenses include the following:
Both of these expenses were paid immediately and did not have to be entered in accounts payable, so they would be recorded as follows:
Date | Account | Debit | Credit |
---|---|---|---|
10-31-2020 | Office Expenses | $175 | |
10-31-2020 | Cash | $175 |
Tim made two office equipment purchases.
Tim can choose to record both of these as assets, or he can choose to expense the printer immediately since it’s less than $2,500 and only record the copier as an asset. He chooses to expense the printer. Here is the journal entry that needs to be made to record the printer purchase.
Date | Account | Debit | Credit |
---|---|---|---|
10-31-2020 | Office Supplies | $1,095 | |
10-31-2020 | Cash | $1,095 |
However, Tim still needs to record the purchase of the copier, which is a fixed asset.
Date | Account | Debit | Credit |
---|---|---|---|
10-31-2020 | Fixed Assets -- Copier | $3,000 | |
10-31-2020 | Cash | $3,000 |
Since the copier is being depreciated, Tim will need to record the depreciation expense as well. Tim determines that the salvage value of the copier will be $300, and it will be depreciated over three years using the straight-line method.
($3,000 - $300) ÷ 3 = $900 yearly depreciation
$900 ÷ 12 = $75 per month depreciation expense
Date | Account | Debit | Credit |
---|---|---|---|
10-31-2020 | Depreciation Expense | $75 | |
10-31-2020 | Accumulated Depreciation | $75 |
When recording a purchase as an asset, be sure to record both the purchase and the depreciation expense.
If you’re still confused about how to correctly classify your office supplies, there are some best practices you can follow.
Paper, pens, pencils, and the like are all consumable items. Unless you buy a year’s worth of these items, they should all be expensed at the time they are purchased.
Related to the consumable question, you can look at how quickly you will consume an item before determining how to classify it. For example, if you contract services for a cleaning company that is paid monthly, that should be recorded as an office expense. But if you purchase cleaning services and prepay them a year in advance, you’ll need to record them as a prepaid expense and expense them monthly.
IRS rules allow you to expense any equipment or machinery in its entirety if it costs less than $2,500. However, the option remains for you to expense that item over an extended period if you wish. In many cases, small businesses will establish an internal cut-off point, which can be helpful when trying to determine whether to immediately expense an item or not.
If the item purchased will significantly impact your financial statements, it will need to be recorded as an asset. For example, a company with a small number of assets will have a lower threshold for purchases than one that has a higher number of assets.
Unless you purchase in bulk for the upcoming year, your office expenses will simply be office expenses. While things can get a little confusing when trying to determine exactly how to classify a particular item, such as a $500 laptop or a small, desktop printer, it’s ultimately up to you to determine whether you want to classify the purchase as an asset or whether it’s just an office expense.
Remember that these transactions will impact both your balance sheet and your income statement, so it’s important to record them properly.
Our Small Business Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.