Question

Delta Company started Year 2 with a $1,700 balance in its Cash account, a $700 balance in its Supplies account and a $2,400 balance in its Common Stock account. During Year 2 the company experienced the following events.

(1) Paid $1,600 cash to purchase supplies.
(2) Physical count revealed $400 of supplies on hand at the end of Year 2.
Based on this information, which of the following show how the year end adjusting entry required to recognize supplies expense would affect Delta's account balances?
1) Cash account would decrease by $1,600 and Supplies account would decrease by $400.
2) Cash account would increase by $1,600 and Supplies account would increase by $400.
3) Cash account would decrease by $1,600 and Supplies account would increase by $400.
4) Cash account would increase by $1,600 and Supplies account would decrease by $400.

Answer 1

The year-end adjusting entry to recognize supplies expense would decrease the Supplies account by $1,900, reflecting the supplies used during the year. The Cash account is not affected by this adjustment.

Step-by-step explanation:

The student is asking about how to record the year-end adjusting entry for supplies expense in Delta Company's accounts. There are four possible outcomes provided in the question, but option 1 is incorrect because the cash account is not affected by the year-end adjustment for supplies. Option 2 is also incorrect, as neither the cash account increases nor does the supply account during this adjustment. The correct adjusting entry requires the recognition of supplies used during the year, which would be the difference between the starting balance and the physical count at the end. Option 3 is incorrect because a supplies expense does not impact the cash account during adjustment. The correct answer is option 4: the Cash account is not affected by the adjustment, and the Supplies account decreases by the amount of supplies used during the year, which is $700 (starting balance) + $1,600 (purchases) - $400 (ending balance) = $1,900 in supplies expense.