Is Supplies a Permanent Account? An Accounting Answer

In an accounting context, “supplies” refers to various items a business uses during its daily operations that are not intended for direct resale. This can include common items such as office supplies like paper and pens, cleaning supplies, or even small tools and materials used in service delivery. These items are consumed over time as the business conducts its activities.

Permanent Versus Temporary Accounts

Understanding the distinction between permanent and temporary accounts is foundational to financial accounting. Permanent accounts, also known as real accounts, carry their balances forward from one accounting period into the next. These accounts are found on the balance sheet and represent a company’s assets, liabilities, and owner’s equity. Examples include Cash, Accounts Receivable, Equipment, Accounts Payable, and Owner’s Capital.

Conversely, temporary accounts, sometimes called nominal accounts, are closed out at the end of each accounting period. These accounts primarily appear on the income statement and include all revenues and expenses, alongside dividends or owner’s drawings. Their balances are reset to zero after closing, allowing each new period to begin with a fresh slate for measuring profitability.

Why Supplies Is a Permanent Account

The “Supplies” account is classified as a permanent account because it represents an asset of the business. An asset is defined as a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. Unused supplies clearly fit this definition, as they are resources that the business owns and will utilize in future operations to help generate revenue or facilitate business activities.

As a result, the “Supplies” account appears on the balance sheet, which is a snapshot of a company’s financial position at a specific point in time. Its balance reflects the value of supplies still on hand, and this balance carries over from one accounting period to the next, just like other assets such as cash or buildings. This continuous balance reinforces its classification as a permanent account.

Accounting for Supplies Over Time

When a business initially purchases supplies, they are recorded as an asset in the “Supplies” permanent account. This transaction typically involves increasing the Supplies asset account and decreasing either the Cash account or increasing an Accounts Payable liability account if purchased on credit. For example, a debit to Supplies and a credit to Cash or Accounts Payable accurately reflects the acquisition of this resource.

As the business operates, these supplies are gradually used up. At the end of an accounting period, an adjustment is necessary to reflect the portion of supplies that has been consumed. This adjustment ensures that the financial statements accurately portray both the remaining asset and the expense incurred during the period. The amount of supplies used is then recognized as an expense, typically by debiting the “Supplies Expense” account and crediting the “Supplies” asset account.

This adjustment process is consistent with the matching principle in accounting, which aims to match expenses with the revenues they help generate in the same accounting period. The unused portion of supplies remains in the permanent “Supplies” asset account on the balance sheet, reflecting the asset’s current value.