During a company's first yearof operations, the asset account, Office Supplies, was debited for $2,700 for the purchases of supplies. At year-end, a physical count of the supplies on hand revealed that $1,025 of unused supplies were available for future use. How will the related adjusting entry affect the company's financial statements?

Multiple Choice

• Assets and expenses will both increase by $1,025.
• The related adjusting entry has no effect on net income or the accounting equation.

Expenses and assetswill both increase by $1,675.

Expenses will increase and assets will decrease by $1,675.