Chester Company started Year 2 with a $2,000 balance in its Cash account,a $500 balance in its Supplies account,and a $2,500 balance in its Common Stock account.During Year 2,the company experienced the following events:
(1)Paid $1,400 cash to purchase supplies.
(2)Physical count revealed $300 of supplies on hand at the end of Year 2.
Based on this information,which of the following shows how the year-end adjusting entry required to recognize supplies expense would affect Chester's account balances?

Question

Quizplus · Accepted Answer

The amount of supplies available for use is $1,900 ($500 beginning balance in the Supplies account plus the $1,400 amount of supplies purchased). Given that there was $300 of supplies on hand at the end of the accounting period, $1,600 ($1,900 available ? $300 ending balance) of supplies must have been used during the period. The amount of supplies used would be recorded as an expense. The expense recognition would cause assets (supplies) to decrease by $1,600, supplies expense to increase by $1,600, and equity (retained earnings) to decrease by $1,600.

Chester Company Started Year 2 with a $2,000 Balance in Its