Question

Sheldon Company began 2016 with $1,200 in its supplies account. During the year, the company purchased $3,400 of supplies on account. The company paid $3,000 on accounts payable by year end. On December 31, 2016, Sheldon counted $1,400 of supplies on hand. Sheldon’s financial statements for 2016 would show __________.

Answer 1

The financial statements will show

Accounts payable $200 and Supplies $1,400 both in the balance sheet.

Supplies expense $3,200 in the income statement

Step-by-step explanation:

When Supplies are purchased, a debit is posted to Supplies account and a credit to cash account or accounts payable with the cost of the purchase.

As the inventories are used, debit Supplies expense and credit Supplies inventory account. The supplies account balance is shown in the balance sheet and the amount used up as an expense in the income statement.

The movement in the supplies account is given as

Opening balance + purchases - Supplies used = Closing balance

$1,200 + $3,400 - Supplies used = $1,400

Supplies used = $1,200 + $3,400 - $1,400

= $3,200

The amount paid is deducted from the amount payable by debiting accounts payable and crediting cash. Hence balance in the payables account

= $3,400 - $3,200

= $200