Question

Vaughn Company purchased supplies costing $3900 and debited Supplies for the full amount. At the end of the accounting period, a physical count of supplies revealed $1300 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be

debit Supplies, $1300; credit Supplies Expense, $1300.

debit Supplies Expense, $1300; credit Supplies, $1300.

debit Supplies Expense, $2600; credit Supplies, $2600.

debit Supplies, $2600; credit Supplies Expense, $2600.

Answer 1

The correct answer is "Debit Supplies Expense $2,600; Credit Supplies $2,600.

Supporting explanations:

Supplies which is current asset that always has debit balance so at the end of the period, if the supplies balance is less than total of beginning balance and purchases, the balance is usage of supplies. When supplies are used, it decreases so it is credited and usage of supplies is treated as supplies expense which is reported as an expense in the income statement. Supplies expense is an expense so when it incurs or increases, it is debited. The amount of supplies expense is the difference between the beginning balance of supplies plus purchase of supplies less ending balance of supplies. That is $3,900 - $1,300 = $2,600 which is the supplies expense.

The same is shown in the below journal entry -

Account Titles and Explanation	Debit	Credit
Supplies Expense ($3,900 - $1,300)	$2,600
Supplies		$2,600
(To record the adjusting entry for usage of supplies)