Question

The trial balance shows Supplies $0 and Supplies Expense $1,500. If $800 of supplies are on hand at the end of the period, the adjusting entry is...

A) Debit Supplies Expense $700 and credit Supplies $700.
B) Debit Supplies Expense $800 and credit Supplies $800.
C) Debit Supplies $800 and credit Supplies Expense $800.
D) Debit Supplies $700 and credit Supplies Expense $700.

Answer 1

To adjust the supplies and supplies expense accounts, you must debit Supplies by $700 and credit Supplies Expense by $700 to reflect the actual value of supplies on hand at the end of the period. The correct option is D.

Step-by-step explanation:

The question is about making an adjusting entry for supplies in accounting. Given the trial balance shows Supplies at $0 and Supplies Expense at $1,500, and that $800 of supplies are on hand at the end of the period, we need to adjust these accounts to reflect the actual value of supplies on hand.

Since the trial balance shows that no supplies are on the books initially ($0), but physically, there are $800 worth of supplies still available, you must increase the Supplies account by $800 to reflect this.

On the other side, because you've already expensed $1,500 for supplies while only $700 ($1,500 - $800) were actually consumed, you need to reduce the Supplies Expense by $700.

The correct adjusting entry would be:

1. Debit Supplies for $800 (to increase the asset Supplies)
2. Credit Supplies Expense for $700 (to decrease the expense because it was initially overstated by this amount)

Therefore, the answer is D) Debit Supplies $700 and credit Supplies Expense $700.