What Effect Does Purchasing Office Supplies With Cash Have on the Accounting Equation?

by Christopher Carter

The accounting equation demonstrates the relationship between a company's liabilities, assets and owners' equity. The accounting equation states that assets equal liabilities plus owners' equity. An asset is a company resource that holds an economic value like cash and accounts receivable. Liabilities are claims that creditors and other parties have on a company's assets. Examples of liabilities include accounts payable and unearned revenue. Owners' equity exists as the total contribution to a business, plus the remainder of a company's assets minus liabilities, as explained by the Accounting Coach website.


Cash exists as a company's most liquid asset. Purchasing office supplies with cash will reduce a company's assets. Since owners' equity equals assets minus liabilities, owners' equity will be reduced as a result of buying office supplies with cash. A company must record an entry in the general journal that reflects the events of the transaction. The date, dollar amount, name of the supplier and the corresponding account code should appear in the general journal. The entry will require a debit for office supplies and a credit for cash. The credit for cash and debit for office supplies must be the same amount.


Office supplies exist as a current asset, meaning the company will likely use the office supplies in one year or less. Most company's need pens, paper, ink and other office supplies to function on a daily basis. By purchasing office supplies with cash, a company is decreasing its cash assets but increasing its supplies assets. In this transaction, a company's liabilities and owners' equity are unaffected. The company's total assets remain the same, since the decrease in cash is offset by the increase in supplies.


A company must make an adjustment to reflect use of its office supplies throughout the year. The adjusting entry for office supplies used can be found in a company's general journal. The adjusting entry must include the date of the entry, the dollar amount and the corresponding account number for the supplies expense account. The company must debit office supplies expense and credit the supplies account for the same dollar amount.


This transaction decreases the office supplies account, which decreases an asset. This means the company's owners' equity will be lower due to the reduction in assets. Office supplies are converted to expense as the company uses the supplies during the course of operating the business. The adjusting entry debit to office supplies expense decreases a company's owners' equity.

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