Final answer:
The adjusting entry is categorized as an accrual entry. It ensures that the financial statements accurately reflect the correct amounts for supplies expense and supplies asset.
Step-by-step explanation:
The adjusting entry described in the question is categorized as a(n) accrual entry. An accrual entry is used to adjust previously recorded amounts in the financial statements to reflect the correct balances. In this case, the adjusting entry is made to adjust the supplies expense and supplies asset accounts.
For example, if a company initially recorded $500 as supplies expense and $2,000 as supplies asset, but then realized that only $400 worth of supplies was actually used, an adjusting entry would be made to decrease the supplies expense by $100 (from $500 to $400) and decrease the supplies asset by $1,600 (from $2,000 to $400).
This adjusting entry ensures that the financial statements accurately reflect the correct amounts for supplies expense and supplies asset.