#15 Supplies: Original Purchase and Adjusting Entry
On January 1, the company had office supplies costing $4,600. On March 23, the company
bought additional office supplies costing $8,200; the company paid cash. On December 31,
a physical count of office supplies revealed that supplies costing $2,900 remained. (1) Make
the journal entry necessary on the company’s books on March 23 to record the purchase of
office supplies and (2) make the adjusting entry necessary on December 31 with respect to
office supplies.
(1) Journal entry on March 23 to record the purchase of office supplies:
Office Supplies Expense $8,200
Cash $8,200
Explanation:
This entry reduces cash by $8,200 (as the company paid cash for the supplies) and increases the Office Supplies Expense account by the same amount, as this expense is incurred.
(2) Adjusting entry on December 31 with respect to office supplies:
Office Supplies Expense $4,700
Office Supplies $4,700
Explanation:
This entry adjusts the Office Supplies Expense account by $4,700 (computed as $8,200 - $2,900), reducing it to reflect the actual supplies used during the year. Simultaneously, the Office Supplies asset account is reduced by the same amount to reflect the remaining supplies on hand at the end of the year.
To answer this question, we need to understand the concept of journal entries and adjusting entries.
Journal entries are used to record transactions in a company's books of accounts. They typically include debits and credits to various accounts to reflect the effects of the transaction.
Adjusting entries are made at the end of an accounting period to update accounts and bring them to their correct balances, based on accurate and up-to-date information.
Now, let's answer the given question:
1) To record the purchase of office supplies on March 23, we will make a journal entry. The office supplies account will be debited for the cost of supplies purchased, and the cash account will be credited as the payment was made in cash. The entry will be as follows:
Date: March 23
Office Supplies $8,200
Cash $8,200
2) To make the adjusting entry on December 31 with respect to office supplies, we need to determine the cost of supplies used during the year.
The office supplies account's balance on January 1 was $4,600, and additional supplies costing $8,200 were purchased on March 23. Therefore, the total cost of supplies available for use during the year was $4,600 + $8,200 = $12,800.
The physical count on December 31 revealed that supplies costing $2,900 remained. Thus, the cost of supplies used will be $12,800 - $2,900 = $9,900.
We will now create the adjusting entry to reflect this information. We will debit the supplies expense account for $9,900 to record the expense and credit the office supplies account for $9,900 to reduce its value accurately. The entry will be as follows:
Date: December 31
Supplies Expense $9,900
Office Supplies $9,900
This entry will ensure that the office supplies account's value is reduced by the amount that was used during the year, and the expense is properly recorded in the supplies expense account.
Remember, journal entries and adjusting entries are fundamental concepts in accounting, and understanding them is crucial for accurately recording transactions and maintaining accurate financial records.