Question

Bay City uses the purchases method to account for supplies. At the beginning of the year the City had no supplies on hand. During the year the City purchased $600,000 of supplies for use by activities accounted for in the General Fund. The City used $400,000 of those supplies during the year. Assuming that the city maintains its books and records in a manner that facilitates the preparation of its fund financial statements, at fiscal year-end the appropriate account balances related to supplies expenditures and supplies inventory would be?

		Expenditures $600,000; Supplies Inventory $200,000.
		Expenditures $600,000; Supplies Inventory $0.
		Expenditures $400,000; Supplies Inventory $200,000.
		Expenditures $400,000; Supplies Inventory $0.

Answer 1

In the books of Bay City
Journal Entries
Sr No.	Particular	Amount (Dr)	Amount (Cr)
(A)	Supplies                                              Dr	$600,000
	To Bank		$600,000
	(Being supplies purchased)
(B)	Supplies Expenses                               Dr	$400,000
	To Supplies		$400,000
	(Being supplies expenses are recorded)
	Total	$1,000,000	$1,000,000

Therefore, Supplies Expenses = $400,000 and Supplies Inventory = $200,000