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Adjusting Entries: Supplies quiz #1 Flashcards

Adjusting Entries: Supplies quiz #1
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  • Why are supplies considered assets in accounting?
    Supplies are considered assets because they are purchased and owned by the company and are used up in business operations.
  • What is the initial journal entry when a company purchases supplies for cash?
    The initial entry is a debit to the supplies account and a credit to cash, reflecting an increase in assets and a decrease in cash.
  • How is the adjusting entry for supplies determined at the end of an accounting period?
    The adjusting entry is based on the physical count of supplies left at the end of the period, not on the passage of time.
  • If a company starts with $800 in supplies and has $200 left at period end, what is the adjusting entry?
    Debit supplies expense for $600 and credit supplies for $600 to reflect the supplies used.
  • How does the supplies adjusting entry differ from that of prepaid expenses?
    Supplies are adjusted based on the amount physically left, while prepaid expenses are adjusted based on the passage of time.
  • What is the supplies expense under cash basis accounting when supplies are purchased?
    Under cash basis, the entire purchase amount is debited to supplies expense and cash is credited.
  • How is the adjusting entry made under cash basis accounting if some supplies remain unused at period end?
    Credit supplies expense and debit a newly created supplies account for the value of unused supplies.
  • What is the final balance in the supplies account after adjusting entries if $200 of supplies remain from an $800 purchase?
    The supplies account will have a final balance of $200, representing the unused supplies.
  • What is the final balance in the supplies expense account after adjusting entries if $600 of supplies were used?
    The supplies expense account will have a final balance of $600, representing the supplies used during the period.
  • Why do both accrual and cash basis methods result in the same final balances for supplies and supplies expense after adjustments?
    Because both methods adjust the accounts to reflect the actual amount of supplies used and remaining, ensuring accurate financial reporting.
  • What type of adjusting entry is the supplies adjustment classified as?
    The supplies adjustment is classified as a deferral.
  • What information is necessary to prepare the adjusting entry for supplies at period end?
    You need the initial supplies balance and the value of supplies left at the end of the period, usually determined by a physical count.