Question

When the accounts of Daniel Barenboim Inc. are examined, the adjusting data listed below are uncovered on December 31, the end of an annual fiscal period.

1. The prepaid insurance account shows a debit of \(5,280, representing the cost of a 2-year fire insurance policy dated August 1 of the current year.
2. On November 1, Rent Revenue was credited for \)1,800, representing revenue from a subrental for a 3-month period beginning on that date.
3. Purchase of advertising materials for \(800 during the year was recorded in the Advertising Expense account. On December 31, advertising materials of \)290 are on hand.
4. Interest of $770 has accrued on notes payable.

Instructions

Prepare the following in general journal form.

1. The adjusting entry for each item.
2. The reversing entry for each item where appropriate.

Short answer

1. The total debit and credit side of the journal is $2,760
2. The total debit and credit side of the journal is $1,660

Step-by-step solution

Meaning of Journal Entry

A journal entry is a record of financial transactions kept in the books of accounts of an organization. There are debit and credit columns in addition to each transaction.

(a) Preparing journal entry

Adjusting entries

Date	Particulars	Debit ($)	Credit ($)
31 Dec.	Insurance expense	1,100
	Prepaid Insurance		1,100
31 Dec.	Rent Revenue	600
	Unearned Rent Revenue		600
31 Dec.	Supplies	290
	Advertising Expense		290
31 Dec.	Interest Expense	770
	Interest payable		770
		$2,760	$2,760

(b) Preparing the reverse entry

Reversing Entries

Date	Particulars	Debit ($)	Credit ($)
1	No reverse entry required
2	Unearned rent revenue	600
	Rent Revenue		600
3	Advertising Expense	290
	Supplies		290
4	Interest payable	770
	Interest expense		770
		$1,660	$1,660