The following errors took place in journalizing transactions:
a. A purchase of a one-year insurance policy was recorded as a debit to Insurance Expense of $3,000 and a credit to Accounts Payable of $3,000. The company records its prepaid expenses to the balance sheet account.
b. The receipt of $3,500 for four months’ rent was debited to Cash and credited to Fees Earned. The company records their unearned revenues to a balance sheet account.
c. A $15 cash purchase of supplies was erroneously recorded as a $51 debit to Supplies and a $51 credit to Accounts Payable.
d. A debit of $1,450 to Accounts Receivable and its balancing credit entry to Fees Earned were not recorded.
1. Journalize the entries to correct the errors if necessary. Include explanations.
2. Explain why, in transaction a., the insurance policy is not considered an expense.