Every auditor or whoever is in charge of making an inventory must know what type of asset office stationeries are. Generally, a current asset is considered an asset that will provide economic benefit to the owner for at least one year. Any asset that does not offer value for up to one year may not be classified as a current asset except for a few exemptions. Organizations need to learn to characterize every item regarded as supplies and determine the value they create to provide proper records in their balance sheet. Simple errors of omission or addition can add up significantly, especially to taxes and expenses.
So, Are Office Supplies Current Assets?
Office supplies, include Office Corporate Stationery, are considered a current asset until the point at which they are used. Once the supplies are used, they are automatically converted to expense, which is a more reasonable step to take. For this reason, office supplies cannot be categorized as a current asset because they do not offer long-term value. Their value diminishes over time and may eventually become a liability or expense.
Why Supplies Are Expense And Not Current Asset
When office supplies are not in use, they can be classified as a current asset, but they become expenses once used up.
Suppose the value of the office stationery or any other supply is considered insignificant and would probably make no impact on the company’s financial report. For this reason, the organization may debit the office supplies expense account at the time of purchase.
Though this may go against accounting standards, companies still make sense to do this based on an accounting principle known as “materiality.”
Materiality As An Accounting Principle
Materiality can be described as an accounting principle that states that you or any other person designated by your organization can ignore an accounting principle if such an act makes an insignificant impact on an organization’s financial statement.
This notion of the decision also means that including an office supply can be recorded as an expense account if it will mislead nobody and force a review of the organizations. This popular intention also means that you don’t have to follow accounting principles under the general account rules when entering office supplies in your account.
According to the standard set by the US Securities and Exchange Commission of 1999, any office item representing five or more percent of an organization’s total asset must be deemed “material” and must be listed separately on the balance sheet.
In the case of office supplies, if the value is significant enough to reach at least 5% of your total business asset, you must report it as a current asset on the company’s balance sheet.
There is no law enforcing any item considered immaterial; hence you need to use your judgment to determine each case. Any item that accounts for less than 5% of your company’s total asset can still be considered material in some instances. For instance, if a low-value item changes the company’s net profit, then the item must be regarded as material regardless of how insignificant the value is.
Our Office Supplies Credit Or Debit?
In the world of bookkeeping, for every transaction, most transactions will be entered as either credit or debit. In the office supplies, you don’t need to enter them except they are insignificant. Taking this deliberate step means that you can debit such supplies as part of your office supplies account expense. If you paid for such supplies in cash, you would have to credit your cash account. Taking this action also means that office supplies that do not cost up to 5% of your total revenue should not be classified or recorded under the current account. It would be best to debit the supplies as part of the expenses to your office supplies account. If you have paid for your office supplies in cash, you will have to debit it as an expense to your office supplies account.
Is There A Difference Between Supplies And Inventory?
Supplies can be described as items an office used in running their businesses, significantly to drive revenue. On the other hand, your Inventory is considered as items that have been made or purchased already either by the company or another party to sell to consumers.
It would be best to classify supplies and Inventory correctly because of specific tax implications applicable to each of them. To reduce taxes on supplies or Inventory, business owners often try to purchase in bulk as taxes are significantly reduced with an increase in the volume of supplies. In some cases, companies do pay incentives to supply sellers to reduce costs of purchase.
Keep in mind that you must pay sales taxes on your supplies, but you don’t have to do the same on Inventory. The reason for this is that goods usually are taxed once, especially at the retail level. In the case of Inventory, all items will be taxed when they are sold to consumers.
When supplies such as pens, printer toner, or paper are purchased for your business, you will remain the end consumer, which means you have to pay sales tax on such. This issue is one crucial reason you have to separate your Inventory from supplies when entering the records in your organization’s balance sheet.
Since a current asset is an asset that will provide economic benefit for an organization for at least a year, you can add corporate office stationery with great value to the current section of the balance sheet. There are no strict rules on where to enter this stationery into your balance sheet, especially when the stationery or group of stationeries are of nominal value. For clarity purposes, it will still be wise to follow the standard procedures for entering such items as you will be better organized to work out issues such as taxes. A professional auditor is in the best position to find the right place to enter components like office stationery by comparing their value.