Homework SourseOffice Supplies Faberton Inc purchases office supplies once
Office Supplies
Faberton, Inc. purchases office supplies once a month and prepares monthly financial statements. The asset account Office Supplies on Hand has a balance of $1,330 on May 1. Purchases of supplies during May amount to $1,100. Supplies on hand at May 31 amount to $920.
Required:
1. Identify and analyze the effect of the adjustment on May 31.
How does this entry affect the accounting equation?
If a financial statement item is not affected, select \"No Entry\" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.
2. What will be the effect on net income for May if this adjustment is not recorded?
Net income for the month of May would be by $ if this adjustment were not recognized because expenses would be .
| Activity | Operating |
| Accounts | Office Supplies on Hand Increase, Office Supplies Expense Increase |
| Statement(s) | Balance Sheet and Income Statement |
Solution
1 Total supplies available was = 1330 + 1100 = 2430
Since, on hand supplies were only 920, expense = 2430 - 920 = 1510
Equation:
2
If this adjustment has not been recorded, expenses are understated by 1510 thus inflating profit by 1510
| Assets | = | Liabilities | + | Equity | Revenues | - | Expenses | = | Net income | |
| -1510 | 1510 | -1510 |
