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Supplies is an example of the deferral adjusting entry. It occurs when cash is paid before supplies expense is incurred. Lets look at an example: Assume on January 1 Morrissey purchases recording studio supplies for $2000. Lets answer the following questions. What is the journal entry on January 1? Is an adjusting journal entry? What are the balances on the unadjusted trial balance for supplies and supplies expense? The journal entry in January 1 is a debit to the asset account supplies and a credit to the asset account cash for $2000. This is not an adjusting entry because theres an underlying transaction that happened on January 1. So the unadjusted trial balance for supplies at the end of the month is still $2000. As of yet no supply expense has been recorded. Lets assume that $1500 of supplies were used up during the month. What is the adjusting entry on January 31? Well the adjusting entry on January 31 is a debit to the expense account, supplies expense and a credit to the
