What Is the Adjusting Entry for Unused Supplies?

by Karen Rogers

When you purchase supplies, you must enter their full cost in your accounting records. Over time, the supplies are used or discarded. If you use the accrual method of accounting, you must make an adjusting entry that reflects the actual amount of supplies you have on hand. This keeps the balance sheet supplies account from being overstated. You can make your adjusting entries when you need to update the supplies account balance or before you prepare your monthly or annual financial statements.

Supplies Used in Manufacturing

Tracking the costs of every nail or screw used on the production line would be expensive and time-consuming. Instead, you account for boxes of supplies as they are requisitioned from the warehouse. The low dollar value of these supplies is added to your manufacturing overhead account. For example, four boxes of nails costing $50 each are required for a production run. The accounting entry is to debit "factory overhead" for the total amount of $200 and credit "supplies-nails" for $200.

Manufacturing Supplies Adjusting Entry

If you have unopened boxes of supplies remaining after all units are produced, they can be returned to the warehouse for future use. Opened or partially full boxes are usually kept on the production line for use in another manufacturing run. The adjusting entry returns the unused boxes back to the supplies inventory. For example, you return two unopened boxes of nails costing $50 each to the warehouse. The adjusting entry is to debit "supplies-nails" for the total amount of $100 and credit "factory overhead" for $100.

Discarded and Obsolete Supplies

When you first purchase supplies, you enter the transaction as a debit to prepaid supplies expense and a credit to supplies expense. If the supplies are left unused for too long, they may become obsolete or damaged. The value of the supplies account will be overstated on the balance sheet if you do not make an adjusting entry. For example, you buy a new computer system and $500 of supplies -- the value of the old computer -- becomes obsolete immediately. The adjusting entry to write-off the obsolete computer is to debit "supplies expense-computer" for $500 and credit "prepaid supplies expenses" for $500.

Monthly Supplies Adjusting Entry

At the end of each month, you can take a physical inventory of your supplies to update the account balance. The adjusting entry is the difference between the beginning balance in the supplies account and the actual supplies remaining. For example, if the beginning balance is $5,000 and you have $4,000 of supplies on hand, you used $1,000 of supplies during the month. The adjusting entry is to debit "supplies expense" for $1,000 and credit "supplies" for $1,000. The ending balance in the supplies account should be $4,000.

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