When do companies recognize supplies expense in the accounting cycle?

• A. When supplies are ordered
• B. At the end of the fiscal year, regardless of usage
• C. When supplies are purchased
• D. When supplies are used or consumed

Answer: (D)

Verified step by step guidance

1. Understand the concept of supplies expense: Supplies expense is recognized when the supplies are used or consumed in the course of business operations, not when they are purchased or ordered.
2. Review the matching principle in accounting: This principle states that expenses should be recognized in the same period as the revenues they help generate. Supplies expense is recorded when the supplies contribute to business activities.
3. Distinguish between purchasing and usage: When supplies are purchased, they are recorded as an asset (Supplies) on the balance sheet. They are not immediately expensed because they have not yet been used.
4. Recognize the adjustment process: At the end of the accounting period, companies assess the amount of supplies used during the period. The used portion is transferred from the Supplies asset account to Supplies Expense on the income statement.
5. Apply the concept in practice: To record supplies expense, companies make an adjusting journal entry. For example, if \$500 worth of supplies were used, the entry would debit Supplies Expense and credit Supplies (asset account) by \$500.