Multiple Choice
Which of the following transactions would require an adjusting entry for supplies at the end of the accounting period?
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3. Accrual Accounting Concepts
Adjusting Entries: Supplies
Multiple Choice
The main purpose of adjusting entries for supplies at the end of an accounting period is to:
A
Eliminate all supplies from the balance sheet
B
Record the correct amount of supplies expense used during the period
C
Recognize revenue earned from selling supplies
D
Increase the cash balance to match physical supplies on hand
Verified step by step guidance1
Understand the concept of adjusting entries: Adjusting entries are made at the end of an accounting period to ensure that revenues and expenses are recorded in the correct period, following the accrual basis of accounting.
Identify the purpose of adjusting entries for supplies: Supplies are initially recorded as an asset when purchased. At the end of the period, the portion of supplies used during the period must be recognized as an expense to reflect the consumption of resources.
Determine the correct adjustment: Calculate the amount of supplies used during the period by subtracting the ending balance of supplies (physical count or inventory) from the beginning balance plus any purchases made during the period.
Record the adjusting entry: Debit the Supplies Expense account to recognize the expense and credit the Supplies account to reduce the asset balance, reflecting the supplies used during the period.
Review the impact: The adjusting entry ensures that the financial statements accurately reflect the supplies expense for the period and the remaining supplies asset on the balance sheet.
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