Accounting Fundamentals Certification (AFC) Practice Test

Supplies purchased on account are classified as assets in accounting because they represent resources that a business owns and expects to use in its operations to generate revenue. When supplies are bought, they are recorded on the balance sheet as inventory or supplies, which fall under the category of current assets. This classification reflects the future economic benefits that these supplies will provide to the company.

Once the supplies are utilized in operations, they will then be recognized as expenses, which will reduce net income on the income statement. However, at the point of purchase, before they are used, they remain classified as assets because they are tangible items that the company has acquired and holds.

The other classifications—liabilities, owner’s equity, and expenses—do not apply to supplies purchased on account in the same way. Liabilities would represent obligations or debts owed to outside parties, owner’s equity reflects the residual interest in the assets of the entity after deducting liabilities, and expenses are costs incurred during operations that have already been recognized. Therefore, the correct classification of supplies purchased on account is as assets.