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