Question

Under the consumption method for recording supplies that are maintained on a perpetual inventory system, the adjusting entry made at year end would affect which of the following accounts?

a. Fund Balance-Nonspendable-Inventory of Supplies.
b. Fund Balance-Restricted-Inventory of Supplies.
c. Inventory of Supplies
d. Expenditures

Answer 1

In a perpetual inventory system using the consumption method, the year-end adjusting entry would debit Inventory of Supplies and credit Expenditures to reflect the supplies used.

Step-by-step explanation:

The consumption method for recording supplies in a perpetual inventory system requires that an adjusting entry be made at the end of the accounting period to reflect the amount of supplies used during the period. Under this method, the adjusting entry would decrease (debit) the Inventory of Supplies account and increase (credit) the Expenditures account.

This adjustment ensures that the expenses are recorded in the period in which they are incurred, in accordance with the matching principle. The entry does not directly affect the Fund Balance accounts.