If A Company Fails To Make An Adjusting Entry To Record Supplies Expense

What happens if a company fails to adjust Supplies Expense Account for the period is answered in this post.

Actually, when supplies used in the period is not adjusted with the supplies on hand, then supplies expense is understated and hence as a result Net Income in Income would be overstated / increased. Moreover, the supplies on hand, as a Current Asset, will be overstated on assets side of balance sheet.

The adjusting entry to record supplies expense account is shown below:

 

                                     Supplies Expense a/c  XXX

 

                                                                       Supplies On Hand a/c  XXX

 

                                      (The value of supplies on hand Adjusted for the Period)

Supplies expense account is debited which is increasing according to the Rules of Debit And Credit. As supplies expense account is not recorded so it causes net income to increase. Supplies on hand is credited (which shows it is decreasing) as it is utilized during the period. As, it is not recorded, so the value of supplies on hand on balance sheet would be increased.