During their first year, Smith and Associates bought $16,000 worth of supplies for their CPA firm. When purchased, the supplies were debited to Supplies and credited to Accounts Payable.
What adjusting entry would Smith and Associates make if $4,000 worth of supplies were on hand at year-end?
A) Supplies Expense 12,000
Supplies 12,000
B) Supplies 4,000
Supplies Expense 4,000
C) Supplies Expense 4,000
Supplies 4,000
D) Supplies 12,000
Supplies Expense 12,000
E) None of the above

Question

Quizplus · Accepted Answer

The correct adjusting entry is to recognize the supplies used during the year. Since $4,000 worth of supplies are still on hand, it means $12,000 ($16,000 - $4,000) worth of supplies were used. The entry debits Supplies Expense and credits Supplies for $12,000, reflecting the consumption of supplies.

During Their First Year, Smith and Associates Bought $16,000 Worth