Question

On January​ 1, Nash Company had $ 1 comma 500 of supplies on hand. During​ January, Nash purchased $ 4 comma 500 worth of new supplies. At the end of the​ month, a count revealed $ 500 worth of supplies remaining on the shelves. The adjusting entry needed will include a debit to Supplies Expense of $ 5 comma 500. The supplies were initially recorded as an asset.True / False.

Answer 1

Answer:

True

Explanation:

Supplies account is a current asset and has a normal debt balance. It is shown on the assets side of the balance sheet under the sub-head 'current assets'.

Given,

Opening balance = $1,500

Purchased supplies = $4,500

Closing balance = $500

Closing balance = Opening balance + Purchased supplies - Supplies used

$500 = $1,500 + $4,500 - Supplies used

Supplies used = $6,000 - $500

Supplies used = $5,500

The used supplies are recorded as an expense for the period. Thus, the supplies (as an asset account) decrease whereas the used supplies (supplies expense account) increase.

Thus, the adjusting entry would be:

Supplies expense                                        Dr. $5,500

   To supplies                                                                 $5,500