The following errors took place in journalizing and posting transactions: a. Insurance of $18,000 paid for the current year was recorded as a debit to Insurance Expense and a credit to Prepaid Insurance.

The following errors took place in journalizing and posting transactions:

a. Insurance of $18,000 paid for the current year was recorded as a debit to Insurance Expense and a credit to Prepaid Insurance.

b. A withdrawal of $10,000 by Brian Phillips, owner of the business, was recorded as a debit to Wages Expense and a credit to Cash.

Journalize the entries to correct the errors. Omit explanations.


Answer:

a. The correction could be made with one or two entries as shown below.
Prepaid Insurance36,000         
Insurance Expense18,000         
Cash18,000         
or (reverses original entry)
Prepaid Insurance18,000         
Insurance Expense18,000         
Prepaid Insurance18,000         
Cash18,000         
b. Brian Phillips, Drawing10,000         
Wages Expense10,000