Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 34

An organization's account for office supplies on hand had a balance of $9,000 at the end of year one. During year two, the organization recorded an expense of
$45,000 for purchasing office supplies. At the end of year two, a physical count determined that the organization has $11,500 in office supplies on hand. Based on this information, what would be recorded in the adjusting entry at the end of year two?

Answer options

• A. A debit to office supplies on hand for $2,500
• B. A debit to office supplies on hand for $11,500
• C. A debit to office supplies on hand for $20,500
• D. A debit to office supplies on hand for $42,500

Correct answer: A

Explanation

The correct answer is A because the organization started with $9,000, spent $45,000, and ended with $11,500, resulting in an actual expense of $45,000 - $11,500 = $33,500. Thus, the adjusting entry should reflect the difference between the actual supplies used and the supplies on hand, which is $2,500. The other options do not reflect the accurate calculation of supplies used.