Blue Ridge Township uses the consumption method of accounting for its inventory of supplies.On the December 31,20X7 balance sheet for the general fund,the township reported $10,000 of supplies inventory.During 20X8,expenditures for supplies amounted to $40,000,and,at December 31,20X8,unused supplies totaled $7,000.In the adjusting entry for supplies at December 31,20X8,
A)Expenditures should be credited for $3,000.
B)Expenditures should be debited for $3,000.
C)Fund Balance-Nonspendable should be debited for $7,000.
D)Fund Balance-Nonspendable should be credited for $7,000.

Question

Quizplus · Accepted Answer

Since the consumption method of accounting is used, the adjusting entry for supplies at December 31,20X8 should record the amount of supplies used during the year, which can be calculated as:

Supplies used = Beginning inventory + Expenditures - Ending inventory
Supplies used = $10,000 + $40,000 - $7,000
Supplies used = $43,000

Therefore, the adjusting entry should debit Supplies Expense for $43,000 and credit Supplies Inventory for $43,000. However, since the question only asks for the amount to be debited or credited to Expenditures, we can simplify the entry by recognizing that Expenditures is the account credited or debited for the difference between the beginning and ending inventory:

Expenditures = Beginning inventory + Additional purchases - Ending inventory
Expenditures = $10,000 + $40,000 - $7,000
Expenditures = $43,000

Thus, the amount to be debited or credited to Expenditures is the difference between the actual Expenditures and the calculated Expenditures based on beginning and ending inventory:

Expenditures adjustment = Actual Expenditures - Calculated Expenditures
Expenditures adjustment = $40,000 - $43,000
Expenditures adjustment = -$3,000

Since the expenditure amount is lower than the calculated amount, Expenditures should be debited for $3,000 to adjust for the decrease in supplies used. Therefore, the correct answer is B.

Blue Ridge Township Uses the Consumption Method of Accounting for Its