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 $2,730 and a credit to Accounts Payable of $2,730. The company records its prepaid expenses to the balance sheet account.
b. Cash was received for prepaid rent. A rent deposit for four months of $6,000 was debited to Cash and credited to Fees Earned. The company records prepaid rent to a balance sheet account.
c. A $65 cash purchase for refreshments for the staff was erroneously posted as a $56 debit to Miscellaneous Expense and a $56 credit to Accounts Payable.
d. A debit of $2,100 to Accounts Receivable and a credit of $2,100 to Fees Earned were missed.
Instructions
1. Journalize the entries to correct the errors. Include explanations.
2. Explain why, in transaction a., the insurance policy is not considered an expense.