When an entry is made to adjust the supplies account and recognize supplies expense for the period, which section of the statement of cash flows is affected?<\/p>\n\n\n\n
The correct answer and explanation is:<\/mark><\/strong><\/p>\n\n\n\n Correct Answer:<\/strong> The statement of cash flows<\/em> is not affected<\/strong> by the adjusting entry for supplies.<\/p>\n\n\n\n Explanation:<\/strong><\/p>\n\n\n\n When a company adjusts the supplies account to recognize supplies expense at the end of an accounting period, it is making an accrual-based accounting adjustment<\/strong>. This involves reducing the asset account \u201cSupplies\u201d and increasing the expense account \u201cSupplies Expense.\u201d For example, if a company initially recorded all purchased supplies as assets and then used some during the period, the adjusting entry recognizes the cost of supplies that were consumed.<\/p>\n\n\n\n This type of adjustment affects the income statement<\/strong> by increasing expenses, and the balance sheet<\/strong> by reducing assets. However, it does not involve any actual cash movement<\/strong> at the time of the adjustment. Because of that, there is no direct effect on the statement of cash flows<\/strong> when this entry is made.<\/p>\n\n\n\n The statement of cash flows reports actual cash transactions during a period and is divided into three sections: operating activities, investing activities, and financing activities. The supplies adjustment is a non-cash transaction<\/strong>, so it does not appear in any of these sections as a direct line item.<\/p>\n\n\n\n However, under the indirect method<\/strong> of preparing the cash flows from operating activities, net income is adjusted for changes in working capital and non-cash expenses. In this context, while the adjustment itself does not directly appear in the cash flow statement, its effect on net income<\/strong> (through an increase in supplies expense) is considered. This means that in the operating activities section<\/strong>, the net income will be adjusted upward or downward to reconcile it with actual cash provided by operations. But the actual adjusting journal entry to recognize supplies expense still remains a non-cash event<\/strong>.<\/p>\n\n\n\n In conclusion, the adjustment to recognize supplies expense does not directly affect<\/strong> the statement of cash flows because it involves no cash.<\/p>\n","protected":false},"excerpt":{"rendered":" When an entry is made to adjust the supplies account and recognize supplies expense for the period, which section of the statement of cash flows is affected? The correct answer and explanation is: Correct Answer: The statement of cash flows is not affected by the adjusting entry for supplies. Explanation: When a company adjusts the […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-37199","post","type-post","status-publish","format-standard","hentry","category-quiz-questions"],"_links":{"self":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/37199","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/comments?post=37199"}],"version-history":[{"count":1,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/37199\/revisions"}],"predecessor-version":[{"id":37200,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/37199\/revisions\/37200"}],"wp:attachment":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/media?parent=37199"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/categories?post=37199"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/tags?post=37199"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}