On January 1, Smith had $2,000 of supplies on hand. During January, Smith purchased $4,000 worth of new supplies. At the end of the month, a count revealed $1,000 worth of supplies remaining on the shelves. The adjustment entry needed will include a debit to Supplies Expense of $5,000. The supplies were initially recorded as an asset.

Question

Quizplus · Accepted Answer

The supplies were initially recorded as an asset, but since the count revealed $1,000 worth of supplies remaining on the shelves at the end of the month, the actual amount of supplies used or consumed during the month was $5,000 ($2,000 beginning balance + $4,000 purchased - $1,000 ending balance). This means that Supplies Expense needs to be debited for $5,000 to reflect the expense incurred in using/consuming the supplies during the month.

On January 1, Smith Had $2,000 of Supplies on Hand