Understanding the Accounting for Office Supplies:
The organization maintains an account for office supplies on hand, which represents unused office supplies at any given time.
The expense recorded during the year represents the cost of office supplies purchased.
At year-end, the adjusting entry is made to reflect the actual amount of supplies on hand and adjust the supplies expense accordingly.
Formula to Determine the Supplies Used:
Supplies Used=Beginning Balance+Purchases−Ending Balance\text{Supplies Used} = \text{Beginning Balance} + \text{Purchases} - \text{Ending Balance}Supplies Used=Beginning Balance+Purchases−Ending Balance
Plugging in the given values:
Supplies Used=9,000+45,000−11,500=42,500\text{Supplies Used} = 9,000 + 45,000 - 11,500 = 42,500Supplies Used=9,000+45,000−11,500=42,500
This amount ($42,500) represents the actual office supplies used and should be recorded as an expense.
The adjusting entry would include:
A debit to Office Supplies on Hand for $42,500
A credit to Office Supplies Expense for $42,500
Why Other Options Are Incorrect:
A. A debit to office supplies on hand for $2,500 – Incorrect, as this figure does not represent supplies used or purchased.
B. A debit to office supplies on hand for $11,500 – Incorrect, as this is the ending balance and not the adjustment amount.
C. A debit to office supplies on hand for $20,500 – Incorrect, as this does not align with the formula for calculating used supplies.
IIA’s Perspective on Financial Reporting and Adjusting Entries:
IIA Standard 1220 – Due Professional Care emphasizes accurate financial reporting and proper adjustments for year-end entries.
GAAP Accounting Principles require accrual-based adjustments to ensure that expenses are recognized in the period they are incurred.
COSO Internal Control Framework supports proper inventory and expense adjustments to avoid misstated financials.
IIA References:
IIA Standard 1220 – Due Professional Care (Financial Reporting Accuracy)
GAAP Accounting Standards – Adjusting Entries for Supplies and Inventory
COSO Internal Control – Accurate Expense Recognition
Thus, the correct and verified answer is D. A debit to office supplies on hand for $42,500.
