Multiple Choice
Which of the following correctly lists the steps in the adjusting process for supplies in the proper order?
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3. Accrual Accounting Concepts
Adjusting Entries: Supplies
Multiple Choice
Adjusting entries are required for supplies at the end of an accounting period in order to:
A
Record the supplies that have been used during the period.
B
Increase the supplies account to reflect purchases made after year-end.
C
Recognize supplies as revenue for the period.
D
Eliminate the supplies account from the balance sheet.
Verified step by step guidance1
Understand the purpose of adjusting entries: Adjusting entries are made at the end of an accounting period to ensure that the financial statements reflect the true financial position and performance of the company. They are necessary to comply with the accrual basis of accounting.
Focus on the supplies account: Supplies are considered a current asset when purchased. However, as they are used during the accounting period, their value decreases, and this usage needs to be recorded as an expense.
Determine the adjustment needed: At the end of the period, calculate the value of supplies used by subtracting the ending balance of supplies (remaining unused supplies) from the beginning balance of supplies (total supplies available). This difference represents the supplies expense for the period.
Prepare the adjusting entry: Debit the Supplies Expense account to recognize the cost of supplies used during the period. Credit the Supplies account to reduce its balance, reflecting the decrease in unused supplies.
Ensure proper financial statement presentation: The adjusting entry ensures that the Supplies Expense is reported on the income statement, and the remaining balance of Supplies is reported as a current asset on the balance sheet.
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