Supplies

a. ASSET METHOD – This asset account is considered as a prepaid expenses account. These
supplies will be utilized in the future and must be adjusted at the end of the period.

Illustration (a): On November 28, 2021, Reyes’ Auditing firm bought supplies amounting to P35,000.

Initial entry:

November 28 Supplies 35,000

Cash 35,000

Case 1. Assuming at December 31, 2021, Supplies on hand amounts only to P15,000.

Adjusting entry:

December 31 Supplies Expense 20,000

Supplies 20,000

Supplies Supplies Expense

Dr. Cr. Dr. Cr.
P 35,000 P 20,000
P 20,000
P 15,000

Case 2. Assuming at December 31, 2021, Supplies expense is P11,500.

Adjusting entry:

December 31 Supplies Expense 11,500

Supplies 11,500

Supplies Supplies Expense

Dr. Cr. Dr. Cr.
P 35,000 P 11,500
P 11,500
P 23,500
 b. EXPENSE METHOD – This is an alternative method.

Illustration (b): On November 28, 2021, Reyes’ Auditing firm bought supplies amounting to P35,000.

Initial entry:

November 28 Supplies Expense 35,000

Cash 35,000

Case 1. Assuming at December 31, 2021, Supplies on hand amounts only to P15,000.

Adjusting entry:

December 31 Supplies 15,000

Supplies Expense 15,000

Supplies Expense Supplies

Dr. Cr. Dr. Cr.
P 35,000 P 15,000
P 15,000
P 20,000 c.

Case 2. Assuming at December 31, 2021, Supplies expense is P11,500.

Adjusting entry:

December 31 Supplies 23,500

Supplies Expense 23,500

Supplies Expense Supplies

Dr. Cr. Dr. Cr.
P 35,000 P 23,500
P 23,500
P 11,500