Question

Shaw Company initially records their supplies as an expense. On January 1, after adjusting and closing entries have been posted, a reversing entry is needed. What is the reversing entry if ending inventory is $2,050?

Answer 1

The reversing entry for Shaw Company's supplies would be a debit to Supplies Expense and a credit to Supplies each for $2,050. For the self-check question, the firm's accounting profit is calculated by subtracting total expenses from sales revenue, resulting in a profit of $50,000.

Step-by-step explanation:

The subject of this question is related to accounting and reversing entries in the context of business operations. To answer the student's specific question about a reversing entry for Shaw Company, if the company records supplies as an expense and needs to account for a supplies inventory of $2,050 at the beginning of the year, the reversing entry on January 1 would be a debit to Supplies Expense for $2,050 and a credit to Supplies for $2,050. This prepares the accounts for the new period by cancelling the adjustment made to supplies at the end of the previous period.

SELF-CHECK QUESTION ANSWER

The self-check question asks to calculate the company's accounting profit. Accounting profit is calculated by subtracting the total expenses from the sales revenue. Here, the firm's sales revenue was $1 million, and the total expenses amount to $950,000 (labor $600,000 + capital $150,000 + materials $200,000). Therefore, the firm's accounting profit is $50,000 ($1,000,000 - $950,000).