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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References (3)

Nashville State Community College: Accounting 1020, Computer Accounting

Financial & Tax Accounting: Bookkeeping Fundamental 2-Adjusting and Closing Entries

Accounting Coach: Adjusting Entries-Asset Accounts

About the Author

Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications.
She received a bachelor's degree in business administration from the University of South Florida.

Photo Credits

Jupiterimages/Creatas/Getty Images

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