Question

In: Accounting

On August 1, supplies were purchased; Accounts Payable was debited and Supplies credited for $1,500. The...

On August 1, supplies were purchased; Accounts Payable was debited and Supplies credited for $1,500. The account was due in October, and $700 of these supplies were on hand at the end of August. The entry to correct the accounts at August 31:

Solutions

Expert Solution

  • The correct entry to record the transactions when supplies are purchased would be a debit to Supplies and a credit to accounts payable. But this has been recorded wrongly as given in the question. The errors include:

>Accounts payable being debited by $ 1500 when this should have been CREDITED.

>Supplies account credited by $ 1500 when this should have been DEBITED.

  • Also, at the end of the month, the supplies physical balance= $ 700. This means that $ 800 ( 1500 – 700) of supplies were consumed and must be recorded as ‘supplies expenses’ by debiting supplies expense account.
  • The correct balance after adjustments should be:

>for Accounts payable = $ 1500 credit
>for Supplies = $ 700 debit
>for Supplies expense = $ 800 debit.

Accounts payable

Supplies

Supplies expenses

Correct balances that should exist

$           1,500.00 credit

$                 700.00 debit

$                   800.00 debit

Existing 'wrong balance'

$           1,500.00 debit

$             1,500.00 credit

$                             -  

Adjustment for correct entry

$           3,000.00 to be CREDITED [1500 for removing debit balance and another 1500 for making balance $1500 credit]

$             2,200.00 to be DEBITED [1500 for removing credit balance and then $ 700 for making balance $700 debit]

$                   800.00 to be DEBITED [to record expenses]

  • Hence, the entry to correct the accounts at Aug 31 would be:

Date

Accounts Title

Debit

Credit

31-Aug

Supplies

$                           2,200.00

Supplies expenses

$                               800.00

Accounts payable

$                                         3,000.00

(entry to correct accounts)


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