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Adjusting Accounting Question.?
This Easy Question is frustrating the hell out of me.
On August 1, Torres Company purchased $2,770 of supplies on account. On August 1, Torres Company debited Supplies Expense, which is an alternate way of recording the initial expenditure. By the end of the calendar year, $60 of supplies was used
Journalize the adjusting entry on December 31.
I thought the answer is
Debt Supplies Expense and Credit Supplies for 60.
The Correct Answer though is:
Debit Supplies and Credit Supplies Expense for 2710.
That makes supplies bigger right?
2 Answers
- ?Lv 78 years agoFavorite Answer
The Supplies Expense account was debited for the full amount (2,770) when no expense had yet been accrued. The original entry was:
Dr Supplies Expense 2,770
Cr Cash 2,770
What the adjusting entry has to do is is take away that part of the expense that has not been accrued and add it to an asset account (Supplies) that will be expensed at a later date.
Since only $60 was used and actually expensed, 2,710 would be the adjusting entry.
Dr Supplies 2,710
Cr Supplies Expense 2,710
It does make the Supplies account bigger. But that's because it was never debited in the first place. You can also see that the Supplies Expense account has been reduced by 2,710. That leaves $60 in the Supplies Expense account, which is the amount of supplies that were actually used.
Source(s): Accounting Fan
