Answer:
The adjusting entry would be:
Dr Supplies Expense or COGS $605
Cr Supplies or inventory account $605
Explanation:
The reason is that the inventory in hand is $263 whereas in the account is $868 which means the inventory must be reduced to $263 because the entry is wrongly passed in the system. So what we will do is decrease the inventory account by $605 ($868 - $263). This means entry must reduce inventory which is debit in nature and decrease in inventory must be then credited. The other entry would be a debit to cost of goods sold because the inventory sold must form part of the cost of goods sold so it must be debited.
The entry is:
Dr Supplies Expense or COGS $605
Cr Supplies or inventory account $605
Note the supplies expense account or cost of goods sold are terms interchangeably used in accounting.
Likewise supplies account and inventory account are also interchangeable terms.
