If you own a business, you may be aware of the need to record transactions related to office supplies. This can include purchases on credit or a company’s purchase of a new piece of equipment. In order to be prepared for tax time, you need to make sure that you follow the proper procedures when making your journal entries.
You will find that the correct classification of office supplies can be quite confusing. The first step is to determine the materiality of the item. There is a general rule that states an expense should be a’material’ if it represents more than 5% of the total assets of the company. However, this does not mean that all expenses should be accounted for in this manner. For example, a $500 desktop printer is an expense.
Next, you will need to consider the depreciation of the asset you are preparing a journal entry for. You can follow the depreciation schedule set forth in The Balance Small Business. Afterward, you should adjust the value of the expense account to reflect the depreciation of the asset.
When a company buys an expensive item on credit, it is generally necessary to record the transaction in a journal. As with any other transaction, a company will want to account for its liability. That is, the liability of having to pay the supplier later on.
If the business has purchased a new computer, it will need to account for the depreciation of the asset. To do this, it will need to make a debit to its Fixed Assets account and a credit to its Loan account. After the two have been reconciled, the cash outflow is credited to its accounts payable and the liability is eliminated.
Another important factor is to make sure you record the actual payment to the supplier. Having a bank account for this purpose is helpful. Typically, it takes 30 days for the client to reimburse the company. Therefore, it is a good idea to make the entry as soon as possible.
When preparing a journal entry, you should always include at least one debit and one credit. It is a common misconception that a debit is a bad thing. Using the right format can help avoid overstating your company’s expenditures. Always remember to write down the description of the transaction, including the date of the transaction and any applicable discounts.
The other big wig in office accounting is the credit purchase of a piece of equipment. This is a relatively new concept for many businesses and is considered the most interesting of all the items. Normally, when you purchase an asset, you will record the expense as an asset on the balance sheet.
Although you will need to keep track of your office supplies in your accounting books, you should not treat them as a financial liability. You should consider classifying your office supplies as an asset or as an expense. This will allow you to easily and accurately report the costs of your business.