The payment of an insurance premium of $5,400 for a three-year policy was debited to Prepaid Insurance

For each of the following errors, considered individually, indicate whether the error would cause the trial balance totals to be unequal. If the error would cause the trial balance totals to be unequal, indicate whether the debit or credit total is higher and by how much.

a. The payment of an insurance premium of $5,400 for a three-year policy was debited to Prepaid Insurance for $5,400 and credited to Cash for $4,500.

b. A payment of $270 on account was debited to Accounts Payable for $720 and credited to Cash for $720.

c. A purchase of supplies on account for $1,600 was debited to Supplies for $1,600 and debited to Accounts Payable for $1,600.


Answer:
a. The totals are unequal. The credit total is lower by $900 ($5,400 – $4,500).
b. The totals are equal since both the debit and credit entries were journalized and posted for $720.
c. The totals are unequal. The debit total is higher by $3,200 ($1,600 + $1,600).