Refer to BE3-6. Assume that instead of crediting a liability account for the $4,800, one-year insurance policy, Big North Insurance credits a revenue account on March 1, 2014.

(a) Prepare the adjusting entry at October 31, 2014. Using T accounts, enter the balances in the accounts, post the adjusting entry, and indicate the adjusted balance in each account.

(b) Compare the adjusted balances in BE3-6, where a liability account was originally credited, with the adjusted balances you determined here in (a), where a revenue account was originally credited. Does it matter whether an original entry is recorded to a liability account or a revenue account? Explain.

Data from BE3-6

On March 1, 2014, Big North Insurance received $4,800 cash from Eire Co. for a one-year insurance policy. Big North Insurance has an October 31 fi scal year end and adjusts accounts annually. Complete the following for Big North Insurance.