Reference no: EM132936620

Max Smart submits the draft accounts for Smart Dry-Cleaning Services for the year ended 30 June 2020. The following adjustments have not been made to the accounts for the year ending 30 June 2020. Smart Dry Cleaning is registered for GST.

• Smart Dry-Cleaning Services placed $10,000 on deposit at 5% pa. with the bank 1 January 2020 but the half -yearly interest, due on 30 June 2020 will not be paid into the account until 1 July 2020.
• The business has two part-time employees who each earn $90 a day. They both worked the last 4 days in June 2020 for which they had not yet been paid.
• An insurance policy covering building contents was taken out on 30 April 2020. The annual premium of $792 was paid in advance on 30 April 2020 and recorded in the Prepaid Insurance account.
• On 31 May 2020, the Heritage Resort paid the business $1,800 (excluding GST) in advance for doing their dry-cleaning for the next three months. This was recorded as a credit to the Unearned Dry-Cleaning account.
• An invoice for repairs to a steam press of $1,540 (GST inclusive) received has not been paid for or recorded at 30 June 2020.

Required:

Problem a. Record the above adjusting entries in the General Journal. Narrations are not required. Explain the purpose of adjusting and reversing entries and when they would be used. Provide examples from Smart Dry-Cleaning Services to illustrate your answer.