Under the expense method of accounting for prepaid expenses, supplies and other prepaid items are entered as expenses when purchased. Under this method, we must adjust the accounts at the end of each accounting period to record the unused portions as assets. To illustrate, let’s assume that the following entry was made when office supplies were purchased:

In the next section, we will illustrate the proper adjusting entry when using the expense method.

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Office Supplies Expense Cash Purchased office supplies 4 25 00 425 00