Question

The Supplies account had a balance at the beginning of year 3 of $7700 (before the reversing entry). Payments for purchases of supplies during year 3 amounted to $46200 and were recorded as expense. A physical count at the end of year 3 revealed supplies costing $14000 were on hand. Reversing entries are used by this company. The required adjusting entry at the end of year 3 will include a debit to:

Answer 1

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Answer-

When supplies were purchased, it was expensed and the entry that would have been recorded would include a debit to the Supplies expense and a credit to the Cash account for $46,200. The balance of supplies after the purchase is $53,900 ($46,200 + $77,00). However at the end of the month, a physical count has revealed that there is Supplies worth $14,000 on hand. In orer to ensure that the correct balance is reflected,the required adjusting entry would include a debit to "Supplies" account and a credit to the supplies expense account.

This is because instead of first recording the supplies as an asset at the time of purchase, it has been expensed. In order to reverse and to reflect the true value of the Supplies , an entry with a debit to supplies account in order to reflect the balance of the supplies account at the end of the year would be correct.