On December 31, the balance in the office supplies account is $1,385. A physical count shows $435 worth of supplies on hand. Prepare the adjusting entry for supplies.

Supplies Expense $ 950 Dr.

Supplies Account $ 950 Cr

To record supplies used.

Explanation:

Supplies are assets until they are used. When they are used up their costs are reported as expenses. The cost of unused supplies are recorded in a supplies asset account.

The entry above shows that supplies of $ 950 have been used up during the accounting period from the amount of $ 1385 leaving supplies of $ 435.

Not making an adjustment entry on 31 Dec would underestimate expenses and overstate net income.