If the adjusting entry to record supplies used during the period is not recorded, then
Blank
______.

Question

If the adjusting entry to record supplies used during the period is not recorded, then 
Blank
______.

BlackTom AI · Accepted Answer

Because supplies used represent an expense, failing to record the adjusting entry leaves assets and stockholders' equity overstated.

1. Relevant knowledge points and concepts
- Supplies are initially recorded as an asset. When supplies are used, an adjusting entry reduces the asset and recognizes Supplies Expense.
- Expenses reduce net income; lower net income reduces retained earnings, a component of stockholders’ equity.
- If the adjusting entry is omitted: assets remain too high (unused reduction not made) and expenses are understated, causing net income and retained earnings (stockholders’ equity) to be overstated.

2. Complete reasoning process step by step
- At period start or purchase, Supplies (asset) is recorded at cost.
- During the period some supplies are consumed; proper adjustment: debit Supplies Expense (increase expense), credit Supplies (decrease asset).
- If not recorded: Supplies asset stays at its pre-adjustment (too high) balance; Supplies Expense is too low (understated); net income is therefore too high; retained earnings and total stockholders’ equity are too high.
- Liabilities are unaffected by this omission.

3. Calculations with intermediate steps (example)
- Suppose Supplies purchased/recorded = $1,000. Supplies used during period = $300.
- Correct adjusting entry: Debit Supplies Expense $300; Credit Supplies $300.
- Correct balances: Supplies asset = $1,000 − $300 = $700. Expenses include $300.
- If omitted: Supplies asset remains $1,000 (overstated by $300). Expenses omit $300 (understated), so net income is overstated by $300, and retained earnings (stockholders’ equity) is overstated by $300.

4. Why the correct answer is correct
- The omission directly causes an asset (Supplies) to be too large and, via overstated net income/retained earnings, causes stockholders’ equity to be too large.

5. Why other options are incorrect (briefly)
- Options involving liabilities are wrong because liabilities are not affected by supplies adjustments.
- Options claiming understatement of assets or stockholders’ equity are incorrect because the omitted entry leaves the asset balance higher than it should and raises net income and equity rather than lowering them.

6. Conclusion
- Therefore, the correct outcome is that assets and stockholders' equity will be overstated, which matches the provided answer.

If the adjusting entry to record supplies used during the period is not recorded, then Blank ______.Single choice

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