Multiple Choice
When preparing adjusting entries for supplies, what is the result of adjusting gross requirements for inventory on hand and scheduled receipts?
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3. Accrual Accounting Concepts
Adjusting Entries: Supplies
Multiple Choice
Which of the following transactions would require an adjusting entry for supplies at the end of the accounting period?
A
No supplies were purchased or used during the period.
B
Supplies were purchased during the period and recorded as an asset, but some remain unused at period end.
C
Supplies were purchased and immediately expensed upon purchase.
D
Supplies were purchased and used entirely within the same period, with all usage recorded.
Verified step by step guidance1
Understand the concept of adjusting entries: Adjusting entries are made at the end of an accounting period to update account balances before financial statements are prepared. They ensure that revenues and expenses are recognized in the correct period.
Identify the scenario requiring adjustment: Supplies purchased during the period and recorded as an asset, but some remain unused at period end, require an adjusting entry. This is because the unused portion needs to be reclassified from an expense to an asset to reflect its future economic benefit.
Determine the accounts involved: The accounts affected are 'Supplies Expense' and 'Supplies (Asset).' The adjusting entry will decrease 'Supplies Expense' and increase 'Supplies (Asset)' to reflect the unused supplies.
Calculate the adjustment amount: To determine the adjustment, calculate the value of unused supplies at the end of the period. This is typically done through a physical count or inventory records.
Record the adjusting entry: Prepare the journal entry to adjust the accounts. The entry will debit 'Supplies (Asset)' and credit 'Supplies Expense' for the value of unused supplies.
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