Question

During a company's first year, the asset account, Office Supplies, was debited for $2,300 for the purchases of supplies. At year-end, office supplies on hand were counted and determined to be $825. The proper adjusting entry crediting supplies and debiting supplies expense will A. increase expenses and decrease assets by $1,475. B. decrease assets and increase expenses by $825. C. increase expenses and increase assets by $1,475. D. have no effect on net income or the accounting equation

Answer 1

A. increase expenses and decrease assets by $1,475.

Step-by-step explanation:

Beginning office supplies (Asset) $2,300

Ending office supplies (Asset) $825

Office supplies used (Asset decrease) = $1,475

Therefore, the journal entry is as follows:

Supplies expense (Debit) = $1,475

Office supplies (Credit) = $1,475

In that case, an expense increases (supplies expense) due to the decrease of an asset (Office supplies). All the other options are wrong apart from option A.