Problem 4-5A

Here is the solution for Problem 4-5A

Problem 4-5A

Adjusting Supplies

You probably asked that question before and maybe you didn’t, why do we need to perform adjustment on Supplies?

The shortest answer to the question is figure the supplies that were used-up during the period. For example, we want to know how much materials were left in the storage area, so we can determine the amount of materials used during the period. A concrete example, at the beginning of the year Company A had five boxes of pencils in storage. At the end of the period, there were only three boxes left. That means a total of two boxes of pencils where used-up.

beginning : 5 boxes
ending : 3 boxes
-------------------
balance : 2 boxes

If the cost of a box is $10, the adjustment would be made as follows:

1. Office Supplies will have a debit balance of $50.
2. In Office Supplies Expense, a debit entry is made amount of $20.
3. In Office Supplies, a credit entry is made amount of $20.

Exercise 4-2

Here is the solution to exercise 4-2.

Exercise 4-2

Exercise 4-2 was about adjusting entries relating to the following:

1. Supplies Used
2. Insurance Expired
3. Depreciation of Office Equipment and Office Furniture
4. Unpaid Salaries

Difference Between Accumulated Depreciation And Depreciation Expense

In the class, Tim had to explain and highlight the method these two accounts were calculated and reported.

For Accumulated Depreciation, the depreciation amount per month is calculated and pro-rated for the period. For example, if the monthly depreciation amount is calculated at $10, each month will have a $10 depreciation cost, as a result the accumulated depreciation for the six month period is now $60. See  Period 1 of Accumulated Depreciation in the figure below.

For the second period, the beginning Accumulated Depreciation is now pegged at $60, add another $60 for the current period and the ending Accumulated Depreciation is now at $120.

For Depreciation Expense, we do not accumulate over the periods, rather the account is zeroed or emptied after closing, this will insure the previous balance do not carry over to the next period.

It is very important to know the difference, expenses are only reported in the period they were incurred. On the other hand, Accumulated Depreciation has a running total that carries over to the next period.