Question

In: Accounting

15–20... If the adjusting entry for supplies used is not recorded at the end of a...

15–20... If the adjusting entry for supplies used is not recorded at the end of a year, how will the following be affected at the end of the year? (Answer using one of the following: not affected, overstated, or understated.)

15. Assets at end of year .............................................................................................

16. Liabilities at end of year .........................................................................................

17. Stockholders’ equity at end of year .....................................................................

18. Revenues for year ..................................................................................................

19. Expenses for year ..................................................................................................

20. Net income for year ................................................................................................

Expert Solution

Answer - The adjusting entry which we pass for Supplies is

Supplies Expense A/c Dr.

To Supplies A/c

Lets see how it will affect the mentioned account heads.

1. Assets at the end of the year - Overstated - Reason - The reason is because the supplies that are used are not adjusted to account, it will show the increased balance of supplies and hence assets.

2.Liabilities at the end of the year- Not Affected - Omission of supplies adjustment entry will not affect liability side of financial statements.

3. Stockholder Equity at end of the year - Overstated - Stockholder Equity will be overstated because in the end of the year we add profit for the year to equity. Since supplies expense is not charged to profit, profit will be overstated and appear more and make the equity overstated.

4. Revenue for the Year - Not affected - The omission of supplies adjustment entry will not affect revenue.

5. Expenses for the year - Understated - Expenses will be understated becasue less expense is charged to them. Ideally charging of supplies expense will increase the amount.

6. Net Income for the year - Overstated - The amount of Net Income will be overstated as less expense has been charged to profit determination.If original supplies expense is made to charge it will reduce net income.

Kindly comment in case of any concerns/doubts. Happy to help.

Thank You, Stay Safe.

ekkarill92 answered 1 year ago

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