During its first three months of operations, Cari's Bakery, Inc. purchased supplies such as plates, napkins, bags, and cutlery for $9,000 and recorded this as supplies inventory. Supplies on hand at the end of the first quarter, amount to $5,600.
To prepare financial statement for the first quarter, the company must record which of the following accounting adjustments?
A) Increase Supplies expense by $5,600 and decrease Supplies inventory by $5,600
B) Increase Supplies expense by $3,400 and decrease Supplies inventory by $3,400
C) Increase Supplies inventory by $5,600 and decrease Supplies expense by $5,600
D) Increase Supplies inventory by $3,400 and decrease Supplies expense by $3,400
E) None of the above

Question

Quizplus · Accepted Answer

The correct adjustment is to recognize the supplies that have been used up during the period. The company started with $9,000 in supplies and ended with $5,600, meaning $3,400 worth of supplies were used. This amount should be recorded as an expense, decreasing Supplies inventory and increasing Supplies expense by $3,400.

During Its First Three Months of Operations, Cari's Bakery, Inc