 Hello in this lecture we're going to record an adjusting entry related to supplies. Remember that adjusting entries are going to have their own set of rules you want to keep them separate in your head. They are still journal entries and they follow the journal entry rules but if we know that we are dealing with adjusting entries we can apply an additional set of rules to help us to understand what the journal entry will be. For example the adjusting entries will all be at the end of the time period, the end of the month or the end of the year and if we take a look at the supplies account we also know that typical adjusting entries will always have an account in the balance sheet section in terms of the trial balance that's going to be somewhere up above this owner's capital account. So if we look for an account on the trial balance related to this supplies on the balance sheet we can say hmm how about supplies and we also note that the supplies the adjusting entries will have an account below the equity section below the owner's capital in the income statement revenue and expenses in this case if we look for a trial balance and look for an account related to supplies we see supplies expense. Note that if we go through that series of questions we can see which accounts are going to be impacted without even really knowing what we're doing and we can also see which accounts are going to be going which way by thinking about the idea that supplies expense is an expense. Expenses are debit balance accounts they only go up in the debit direction therefore we can say that expenses are going to be debited and if we debit the expense and the other account is the asset up here supplies the asset we're going to credit supplies the asset. So we can go through all that we can see what we're going to debit we can see what we're going to credit without even really knowing what's going on just knowing it's an adjusting entry related to supplies. Now let's talk about what's going on if we have supplies when we put supplies on the books we have three thousand nine seventy five dollars worth of supplies what we did is we said hey bookkeeper I want you to put all supplies on the books as an asset whenever you purchase it supplies in this case being ink we're going to say it's computer ink we piled it in the corner every time we purchased it we put it in the asset of supplies what's going to happen at the end of the time period is we plan on counting the supplies so here we are counting the supplies and we are then going to make an adjustment based on our physical count kind of like we would for inventory this is an introduction into inventory and then we're going to adjust the supplies to our physical count in a similar way as a periodic basically inventory system. So if we did that note he's counting up the supplies here we see that there's four units now note we do have to convert the units to a dollar amount the dollar amount we're going to say is one thousand fifty although there are four units many times in textbooks they'll just give you the dollar amount they'll say the supplies at the end of the time period is going to be one thousand fifty what we need to know is what's on the trial balance the unadjusted trial balance before the adjustment and how do we get it to what the physical count was in terms of dollars in this case one thousand fifty well what we do is we take the amount that was on the original unadjusted trial balance and we subtract out what the physical count amount was what our eyeballs say is actually there from the count and we get the adjustment so if we subtract those out then we get two thousand nine twenty five in this case that means that we've got to adjust this amount down by two thousand uh nine twenty five in order to get one thousand fifty how are we going to do that well we can see here that uh we have the supplies account is a debit balance we already know that we're going to credit it now we know the number because we already had the transaction over here we're going to credit it by that two thousand nine twenty five we just calculated if we then post that out then we're going to say the expenses are going to go from zero up by two thousand nine twenty five to two thousand nine twenty five supplies then going from a debit of three thousand nine seventy five a credit down by two thousand nine twenty five to that one thousand uh fifty which should tie out to the problem the physical count that we have then counted assets then are going down in this case because supplies are going down nothing's happened into liabilities equity section is going down why because the expenses went up bringing net income down which brings the total equity section down if we see this in total we can see that the net income here is going down why because the revenue minus the expenses were revenue winning by a credit of eighty eight eight fifty five we then added another debit in terms of supplies expense bringing the net income down to eighty five nine thirty which brings down the entire equity section as well