A company purchased office supplies costing $3,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $600 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be:

debit Office Supplies Expense, $3,600; credit Office Supplies, $3,600.
debit Office Supplies, $600; credit Office Supplies Expense, $600.
debit Office Supplies Expense, $2,400; credit Office Supplies, $2,400.
debit Office Supplies, $2,400; credit Office Supplies Expense, $2,400.

The balance in the prepaid rent account before adjustment at the end of the year is $12,000 and represents three months rent paid on December 1. The adjusting entry required on December 31 is:

debit Prepaid Rent, $4,000; credit Rent Expense $4,000.
debit Prepaid Rent, $8,000; credit Rent Expense, $8,000.
debit Rent Expense, $12,000; credit Prepaid Rent, $12,000.
debit Rent Expense, $4,000; credit Prepaid Rent, $4,000.

1. During the time of acquisition, the company recorded it as an asset entirely, that is why they debited the whole amount as office supplies. At the end of the year, the company must recognize the expense portion of the supplies they have recorded at the beginning. The supplies on hand is only $600, therefore the company have used the $2,400 portion ($3,000 - $600). To recognize the expense portion, we must debit it and credit the asset account. So, debit supplies expense and credit office supplies in the amount of $2,400.

2. During December 1, the company uses asset method of recording the transaction that is why they have recorded the entire amount to prepaid rent. At the year end, the company must recognize the expire portion of the prepaid rent they have recorded previously. $12,000 represents 3 months of prepaid rent therefore, a rent expense of $4,000 per month occurs. The adjusting entry to record the expire portion of the prepaid rent is to debit Rent expense and credit Prepaid rent in the amount of $4,000.