Which of the following is NOT true regarding adjusting entries for supplies at the end of an accounting period?

• A. Failing to make the adjusting entry for supplies will result in overstated assets and understated expenses.
• B. The adjusting entry for supplies typically involves debiting Supplies Expense and crediting Supplies.
• C. Adjusting entries for supplies are made to record the supplies that have been used during the period.
• D. Adjusting entries for supplies are optional and can be omitted if the supplies account is not material.

Answer: (D)

Verified step by step guidance

1. Understand the purpose of adjusting entries: Adjusting entries are made at the end of an accounting period to ensure that revenues and expenses are recognized in the period they are incurred, following the accrual basis of accounting.
2. Focus on the supplies account: Supplies are considered a current asset when purchased. As they are used during the period, their cost is recognized as an expense. Adjusting entries for supplies ensure that the expense is recorded and the asset account reflects the remaining supplies.
3. Analyze the consequences of failing to adjust: If the adjusting entry for supplies is not made, the supplies account (asset) will be overstated because it will include supplies that have already been used. Similarly, the supplies expense will be understated because the cost of used supplies has not been recorded.
4. Review the typical adjusting entry for supplies: The adjusting entry involves debiting Supplies Expense (to increase the expense account) and crediting Supplies (to decrease the asset account). This reflects the usage of supplies during the period.
5. Evaluate the statement about optional adjustments: Adjusting entries for supplies are not optional if the supplies account is material. Omitting the adjustment would violate the matching principle and result in inaccurate financial statements. Therefore, the statement claiming that adjusting entries for supplies are optional is incorrect.