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YOLO1991 · May 3, 2013, 07:44 AM

Hi, I'm having difficulty in this question.

When office supplies is purchased it is recorded as an expense. An end of period stock-take (count) revealed a closing balance of $2,000. There was no opening balance and during the period $7,000 of office supplies was purchased.

I know I have to debit Office Supplies and credit Supplies Expense, but I'm not sure what amount it is.

Thanks for your help

pready · May 3, 2013, 07:54 AM

This is known as a reversing entry and is pretty easy to figure out.

Start with your purchase, which was $7,000 and it was debited into Supplies Expense.

Your inventory count is $2,000, which means that this amount is in inventory and should not have been expensed.

So your debit will be to Office Supplies and your credit will be to Supplies Expense for $2,000 because you have $2,000 worth of office supplies on hand, which means this amount has not been used during the period and should be considered an asset by the company.

The effect of your reversing entry means that out your $7,000 of office supplies purchased $5,000 of those supplies were actually used or expensed in your accounting period.