Understanding Supplies Expense and Depreciation
The student's question pertains to the calculations of expenses for supplies and depreciation of equipment during an accounting period. Depreciation is the allocation of the cost of an asset over its useful life. In the given scenario, the depreciation on equipment is $800. On the other hand, the costs associated with supplies, which are current assets, need to be adjusted for the amount used during the period. The accounting equation for the supplies can be stated as beginning balance plus purchases minus ending balance equals supplies expense. With a beginning balance of $0 and purchases of $780, the calculation of the supplies expense must account for the $144 of supplies that were still on hand at the end of the period.
The calculation for the supplies expense would be as follows:
- Beginning balance of supplies: $0
- Add: Purchases of supplies during the period: $780
- Less: Supplies on hand at the end of the period: $144
- Supplies Expense for the period: $636 ($780 - $144)
This $636 is the amount that would be reported in the financial statements as an expense for supplies for the period, reflecting the actual consumption of supplies. The total expenses related to assets (supplies expense and equipment depreciation) for the period would then be the sum of $800 (depreciation) and $636 (supplies expense), resulting in a combined amount of $1,436.