The most important thing to remember about the difference between business supplies and business equipment is that supplies are a short-term or current asset, while equipment is a long-term asset. Current assets are those assets used up within a year (more or less), while long-term assets are used over several years. Since supplies are supposedly used up within the year of purchase, the cost of supplies as current assets is expensed on the income statement and taken as a deduction on your business taxes in the year they are purchased. Any equipment that has a multi-year life expectancy would be considered an asset.
Since equipment can be used over a longer period of time, the value of this equipment is categorized as a long-term asset on the balance sheet, and the cost is depreciated over time (taken as a deduction in increments over the useful life of the equipment). In each case, the purchase cost is a deductible business expense (as long as the item purchased is used for business purposes), it's just that the expense may be taken over a shorter or longer period of time.
Business supplies are items purchased and typically used up during the year. The most common types of business supplies are office supplies, including staplers, sticky notes, highlighter pens, and supplies used to run copiers, printers, and other office machines.
If you are buying supplies for use in products you manufacture or sell, including packaging and shipping supplies, these supplies are handled differently for accounting and tax purposes. Supplies for making, shipping, and packaging products are counted as inventory and are part of the cost of good sold calculation. At the end of a year, an inventory is taken of these supplies as part of this calculation.
For accounting purposes, business supplies are considered to be current assets. Business supply purchases are deducted on your business tax return in the "Expenses" or "Deductions" section.
Answers are correct to the best of my ability but do not constitute legal or tax advice.
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