Chapter 5
The Accounting Cycle: Adjustments
116
At the end of the period, a count is made to determine the value of the remaining office supplies and
an adjusting entry is created to record the amount of office supplies used as an expense.
To illustrate, suppose a business paid $1,200 cash for office supplies on September 4. This initial
purchase of office supplies is just a transfer of one asset (cash) for another (office supplies) and is
shown in Figure 5.15.
At the end of the month, a count shows that only $700 worth of office supplies remain on hand.
This means that office supplies of $500 ($1,200 – $700) must have been used and must be recorded
as an expense.The adjustment is shown in Figure 5.16. Notice that the ending balance of the office
supplies account is equal to $700, matching the count that was taken.
OFFICE SUPPLIES
OFFICE SUPPLIES EXPENSE
+
+
-
-
1,200
700
Count
500
Adjustment
500
journal
Page 1
date
2016
account title and explanation Pr debit credit
Sep 30 Office Supplies Expense
500
Office Supplies
500
To adjust office supplies used
______________
FIGURE 5.16
Office supplies are often low-value items, such as paper and pens. In many businesses, keeping
track of these small amounts as an asset, then counting them to see what was used is not viewed
as an important procedure. The materiality principle introduced earlier indicates that if a piece of
information could influence a user’s decision, it is material and must be accounted for properly according
to ASPE. For many businesses, it is easier to simply record office supplies as an expense immediately instead
of as an asset first. This is done when the amount is not material, since the extra work and detail would not
affect the users’ decisions.
INTHE REAL WORLD
BALANCE SHEET
LIABILITIES
ACCOUNTS
PAYABLE
UNEARNED
REVENUE
BANK LOAN
INCOME STATEMENT
EXPENSES
SERVICE REVENUE
DEPRECIATION
INSURANCE
SALARIES
RENT
No change in owner’s equity
ASSETS
CASH
OFFICE
SUPPLIES
ACCOUNTS
RECEIVABLE
+$1,200 DR
- $1,200 CR
journal
Page 1
date
2016
account title and explanation Pr debit credit
Mar 1 Office Supplies
1,200
Cash
1,200
Purchased office supplies
____________
FIGURE 5.15
