Are Supplies a Current Asset?
Office supplies may or may not be considered a current asset depending on their cost.
Generally supplies are recorded as a current asset on a company’s balance sheet until they are used.
At that point they would be transferred to the expense account on the income statement.
However, companies may record the cost of supplies immediately as an expense if their cost is low enough to be considered immaterial; that is, if the cost was low enough that it would not impact their financial statements and would not reasonably mislead investors.
Current Asset Definition and Examples
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As mentioned above, current assets are assets expected to be converted into cash within a period of one year.
This includes products sold for cash as well as resources consumed through regular business operations that are expected to provide a cash return within a year.
Assets which fall under current assets on a balance sheet are:
- Cash, such as money in a bank account
- Cash Equivalents, such as certificates of deposit
- Inventory to be sold within 1 year known as “fast moving consumer goods” (or FMCG), such as raw materials
- Accounts Receivable, such as an invoice sent to a client
- Marketable Securities, expected to become cash within 1 year, such as T Bills
- Prepaid Expenses, such as prepaid insurance
- Other Liquid Assets not intended for sale, such as office supplies
With these asset categories falling under current assets, the equation for is the following:
Current Assets = C + CE + I + AR + MS + PE + OLA
- C = Cash
- CE = Cash Equivalents
- I = Inventory
- AR = Accounts Receivable
- MS = Marketable Securities
- PE = Prepaid Expenses
- OLA = Other Liquid Assets
Examples of noncurrent, or fixed assets include property, plant, and equipment (PP&E), long-term investments, and trademarks as each of these will provide economic benefit beyond 1 year.
Current assets reflect the ability of a company to pay its short term outstanding liabilities and fund day-to-day operations.
For this reason, a company’s “working capital” is known as the “current ratio” which divides current assets by current liabilities.