Wouldn't store supplies and office supplies be owner's equity? But that's what I put on my paper and I got it wrong. I always thought of them as expenses.
Supplies are assets, not owner's equity. As they are used up they're expensed. At the end of some period an adjusting entry is made to account for what has been used, and the amount used is some kind of supplies expense for the period.
To understand why supplies are considered assets and not owner's equity, let me break it down for you:
1. Assets: Assets are resources owned by a business that have economic value. Supplies, including store supplies and office supplies, fall under the category of assets because they are tangible items that a business owns and can be used in its operations. They have value and can be used over time.
2. Owner's equity: Owner's equity represents the owner's claim on the assets of the business. It is the residual interest in the assets of the business after deducting liabilities. Owner's equity is typically comprised of initial investments by the owner, retained earnings, and any additional contributions made by the owner.
Now, let's consider how supplies are treated in accounting:
When supplies are purchased, they are recorded as assets on the balance sheet, not as owner's equity. This is because the supplies are owned by the business and can be used to generate revenue. However, as the supplies are used up, their value is gradually consumed or "expensed."
At the end of an accounting period, an adjusting entry is made to account for the supplies that have been used during that period. This adjusting entry reduces the value of supplies on the balance sheet and records the amount used as an expense on the income statement. This expense is categorized as a supplies expense or an office supplies expense, depending on the type of supplies used.
So, while supplies are initially recorded as assets, their value is gradually expensed as they are consumed in the business operations. This is why supplies are not considered to be owner's equity.