How to do this entry,

In the unadjusted trial balance sheet ,Supplies balance is 0. Supplies expense balance is debit 2000. And the company debits supplies expense when supplies are purchased . Supplies on hand at year end cost 500.

Dr supplies expense 500
Cr: Supplies 500

Am I right

No, you are not.

During the year, what they did was (total)

Dr. Supplies Expense 2,000
Cr. Cash 2,000

But, they have 500 left, so they should have only done it 1,500

So you need to take out 500

Dr. Supplies 500
Cr. Supplies Expense 500

You were almost there, you just mixed up which should be a debit and which should be a credit.