Question

The Village Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $2,000 on hand. The adjusting entry that should be made by the company on June 30 is ____________.

Answer 1

Answer:

Debit supplies expense $4,500

Credit supplies account $4,500

Explanation:

When the laundry supplies was purchased, the entries posted is debit to supplies account, credit to cash/accounts payable depending on whether cash was paid or the supplies were made on account.

As the supplies are used, the amount used is accounted for by debiting supplies expense and crediting supplies account.

As such, the balance in the supplies account is the net of the initial debit at purchase and the credit on use.

Hence adjusting amount

= $6,500 - $2,000

= $4,500

Answer 2

Answer:

The adjusting entry that should be made by the company on June 30 is

Inventories $ 6,500 (debit)

PPE Asset $ 6,500 (credit)

Explanation:

Error Made on June 30 was as follows : Village Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset.

PPE Asset $6,500 (debit)

Cash $6,500 (credit)

On 30 June the amount of inventory reported is understated by $6500.While the amount of Assets recorded is overstated by $6500

Therefore the adjasting entry for this situation is as follows

Inventories $ 6,500 (debit)

PPE Asset $ 6,500 (credit)

Thus increasing the Inventory balance and decreasing the PPE Asset Balance.