When office photocopying paper is purchased it is recorded as an expense. An end of period stock-take (count) revealed a.... full question look in the Descripti

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Hi,

 

i am a uni student and try to figure out this question. i have my answer but not sure. can anyone provide me with right solution? or simple guide

question: When office photocopying paper is purchased it is recorded as an expense. An end of period stock-take (count) revealed a closing balance of $3,000. There was an opening balance of $1,000 and during the period $5,000 of photocopying paper was purchased. Record the adjusting entry

Answer 1

Although Photocopy paper is not a very significant asset to be recognized as an asset but still some small businesses may opt to recognize the general stationer items not used at the end of the year as stationery inventory.

I am not sure if you are using the T-account format or statement formats to solve these questions.

There are not much drawing tools available here to write answer so i will use the statement format to show you the inventory account and how to work account the adjusting entry.

Opening balance of inventory $1000 (O/B)
Add: Purchases during the year $5000 (P)
Less : Expense for the year XXX (E)
Closing Balance of inventory $3000 (C/B)

i am using the above abbreviations to make the formula:

O/B + P - E = C/B

Working the equation around to calculate the Expense (E)

E = O/B + P - C/B
That way we get the expense figure as

E = 1000+5000-3000
E = 3000

As the questions says the practice is to charge the paper as expense when purchased. So we know that they have recorded the expense of $5000. Where as the real expense is $3000 as calculated from the equation.

So to adjust the excess expense of $2,000 (5000-3000) we need to pass the following adjusting entry:

Stationery / office supplies Inventory $2000 Dr.
Photocopying paper expense $2000 Cr.

This entry will reduce the expense to $3000 and update the closing inventory balance.

I am sorry for such a long answer. but its easier to explain all this verbally than by writing thats why it took a lot of words.