Double-entry Accounting System
4.21. Analysis of supplies expense adjusting entry
Adjustment No. 7: On May 15, Huske's Consultants acquired supplies for $400 (see Event No. 2). At the end of the accounting period $100 of supplies remained on hand. The difference of $300 (i.e., $400 - $100) shows the amount of supplies used during the year that should be recognized as a supplies expense. The adjustment decreases assets and equity. The decrease in assets (Supplies) is recorded as a credit, and the decrease in equity (by increasing Supplies Expense) is recorded as a debit:
Illustration 42: Effect of supplies expense in T accounts
Assets |
= |
Liabilities |
+ |
Equity |
|||
Supplies |
|
|
|
Supplies Expense |
|||
|
Credit |
|
|
|
|
Debit |
|
This is an asset use transaction:
Illustration 43: Effect of supplies expense in the horizontal model
Assets |
= |
Liabilities |
+ |
Equity |
Rev. |
- |
Exp. |
= |
Net Inc. |
Cash Flow |
|
(300) |
= |
n/a |
+ |
(300) |
n/a |
- |
(300) |
= |
(300) |
n/a |
|
4.22. Presentation of T-accounts for accounting period
We are now going to transfer all transactions to T accounts. Note that we meet the two requirements of the double-entry recording system:
Total Debits = Total Credits |
and
Total Assets = Total Liabilities + Total Equity |
If the two requirements are satisfied, we are sure that all amounts were posted.
Illustration 44: Summary of all accounts with transactions
Assets |
= |
Liabilities |
+ |
Equity |
|||||
Cash |
|
Accounts Payable |
|
Contributed Capital |
|||||
(1) 10,000 (5) 4,000 |
(4) 600 |
|
(12) 400 |
(2) 400 |
|
(1) 10,000 |
|||
|
Bal. 10,000 |
||||||||
|
Bal. 800 |
|
|
||||||
|
|
Consulting Revenue |
|||||||
Unearned Revenue |
|
(3) 2,600 |
|||||||
(A3) 1,800 |
(8) 3,600 |
||||||||
Bal. 11,100 |
|
|
Bal. 1,800 |
||||||
|
|
|
Bal. 5,100 |
||||||
Accounts Receivable |
Notes Payable |
|
|||||||
(3) 2,600 |
(7) 1,500 |
|
(5) 4,000 |
Interest Revenue |
|||||
Bal. 1,100 |
|
|
Bal. 4,000 |
|
(A4) 100 |
||||
|
|
|
|
Bal. 100 |
|||||
Supplies |
Interest Payable |
|
|||||||
(2) 400 |
(A7) 300 |
|
(A1) 163 |
Operating Expense |
|||||
Bal. 100 |
|
|
Bal. 163 |
(4) 600 |
|
||||
|
|
Bal. 600 |
|
||||||
Prepaid Rent |
Salaries Payable |
|
|||||||
(6) 2,400 |
(A2) 1,400 |
|
(A6) 600 |
Salaries Expense |
|||||
Bal. 1,000 |
|
|
Bal. 600 |
(A6) 600 |
|
||||
|
|
Bal. 600 |
|
||||||
Notes Receivable |
|
|
|||||||
(10) 3,000 |
|
|
Office Maint. Expense |
||||||
Bal. 3,000 |
|
|
(13) 800 |
|
|||||
|
|
Bal. 800 |
|
||||||
Interest Receivable |
|
|
|||||||
(A4) 100 |
|
|
Interest Expense |
||||||
Bal. 100 |
|
|
(A1) 163 |
|
|||||
|
|
Bal. 163 |
|
||||||
Office Equipment |
|
|
|||||||
(11) 2,000 |
|
|
Depreciation Expense |
||||||
Bal. 2,000 |
|
|
(A5) 800 |
|
|||||
|
|
Bal. 800 |
|
||||||
Accum. Depreciation |
|
|
|||||||
|
(A5) 800 |
|
Supplies Expense |
||||||
|
Bal. 800 |
|
(A7) 300 |
|
|||||
|
|
Bal. 300 |
|
||||||
|
|
|
|||||||
|
|
Rent Expense |
|||||||
|
|
(A2) 1,400 |
|
||||||
|
|
Bal 1,400 |
|
||||||
|
|
|
|||||||
|
|
Distributions |
|||||||
|
|
(14) 300 |
|
||||||
|
|
Bal. 300 |
|
||||||
Assets |
= |
Liabilities |
+ |
Equity |
|||||
Assets |
= |
Claims |