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Lecture, Formats and Exercise Booklet

Correcting Errors & Suspense


Batch Jan/May 201 _

Student
name
ID #

Includes

Definitions with examples


Formats
Practice sums from text books
IGCCE question paper problems
GCE question paper problems
Sample assessment paper problem
Course Instructor : Manarat Ahmed

IGCSE Accounting
Manarat Ahmed

Course Instructor:

Correcting Errors
Correcting Errors | 1

Errors NOT Affecting Trial Balance


Error of omission: it occurs when a transaction is completely omitted from the books, i.e. no
debit and credit entries were recorded.
For, e.g. purchase of goods for 1000 from G. Wood on credit has been completely omitted from the
books. So, the correction would be, purchase debit 1000 and G. Wood credit 1000.
Error of commission: this type of error occurs when transaction is recorded in the same class but
wrong A/C.
For e.g. purchase of furniture for 500 has been recorded in error to equipment A/C. so, the
correction would be furniture debit 5000 and equipment credit 500
Error of principle:
It occurs when transaction is recorded in a wrong class and in a wrong account
For, e.g. purchase of equipment for 500 has been recorded in error to equipment repairs A/C. So, the
corrected entry is equipment debit 500 and repairs to equipment credit 500.
Error of original entry: It occurs when an item is entered using an incorrect amount.
For, e.g. purchase of equipment for cash 100. So, the correction would be equipment debit 900 and
cash credit 900.
Complete reversal of entries: It occurs when a debit entry is recommended on credit side and a
credit entry is recorded on the debit side.
For, e.g. goods sold to K. Ward 500 on credit has been debited to sales A/C and credited to K. Ward
A/C. So, the correction would be, K. Ward debit 1000 and sales credit 1000.
Compensating errors: It occurs when two errors of equal amount, but on opposite sides of the
accounts, cancel out each other. E.g. Sales A/C is overcast by 200 as well as wages ! The trial
balance, therefore, still balances .
Error of transposition : It occurs when the wrong sequence of individual characters within a
number is entered. e.g. 247 is entered as 724.
**While correcting the above errors we do not need a SUSPENSE account.

Errors affecting trial balance :


Additional error :
It occurs when incorrect additions are made in any account.
Posting error:
Making an entry on only 1 side of the account. E.g. a debit but no credit or a credit but no credit. And
entering a different amount on the debit side from the credit side.
While correcting the above errors we need a SUSPENSE account

Correcting Errors | 2

Suspense account
A suspense account is an account in the general ledger in which amounts are temporarily recorded
when debit and credit balance of trial balance do not match.

*When a suspense account is opened, the balancing figure is balance b/d.


*If the balance b/d occurs in the debit side, then trial balance has a deficit in the debit side.
*If the balance b/d occurs in the credit side, then trial balance has a deficit in the credit side.
CALCULATION of obtaining Revised/Corrected net profit :
Details
Draft Net profit
ADD : Sales / Income/Return out/Goods drawings
undercast
Purchase / Expenses/Return in overcast
LESS : Sales/Income/Return out overcast
Purchase / Expenses/Return in/Goods drawings
undercast
Revised/Corrected Net profit

Invoice issued
Credit note issued
Invoice received
Credit note received

X
X
X
(X)
(X)
X

= sales
= sales return/return inwards
= purchase
= purchase return/ return outwards

Exercise Sum # 1
Show the journal entries with narrations necessary to correct the following errors:
Jan 10..A sale of goods 412 to T More had been entered in T Mones account.
Jan 11. The purchase of a machine on credit from J Frank for 619 had been completely omitted from
our books.
Jan 12. The purchase of a computer for 550 had been entered in error in the Office Expenses
account.
Jan 13. A sale of 120 to B Wood had been entered in the books, both debit and credit, as 102.
Jan 14. Commission received 164 had been entered in error in the Sales account.
Jan 15. A receipt of cash from T Blair 68 had been entered on the credit side of the cash book and
the debit side of T Blairs account.
Jan 16. A purchase of goods 372 had been entered in error on the debit side of the Drawings
account.
Jan 17. Discounts Allowed 48 had been entered in error on the debit side of the Discounts Received
account.
Correcting Errors | 3

Jan 18. A sale of 120 to B Wood had been entered in the books, both debit and credit, as 150.
Date

Details

Dr.

Cr.

Exercise Sum # 2
Show the journal entries with narrations necessary to correct the following errors:
Jan 18. Purchases 1,410 on credit from A Ray had been entered in B Roys account.
Jan 19. A cheque of 94 paid for printing had been entered in the cash column of the cash book
instead of in the bank column.
Jan 20.Sale of goods 734 on credit to D Rolls had been entered in error in D Rollos account.
Jan 21.Purchase of goods on credit L Hand 819 entered in the correct accounts in error as 891.
Jan 22. Cash paid to G Boyd 64 entered on the debit side of the cash book and the credit side of
G Boyds account.
Jan 23 .A sale of fittings 320 had been entered in the Sales account.
Jan 24 .Cash withdrawn from bank 200 had been entered in the cash column on the credit side of
the cash book, and in the bank column on the debit side.
Jan 25. Purchase of goods 1,182 has been entered in error in the Furnishings account.
Jan 26. The purchase of a new van for 6,000 was included in the motor vehicle expenses account.
Correcting Errors | 4

Jan 27. The drawings account included 250 for the purchase of fuel which was used to heat the
business offices.
Jan 28. 300 paid by a customer, B Burton Ltd, had been credited to B Strutons account in error.
Jan 29. The water rates on the proprietors private house, 750, has been paid by the business and
debited to the business rent account.
Jan 30 720 included in the wages account was included in the motor expense account.
Date

Details

Dr.

Cr.

Correcting Errors | 5

Exercise sum # 3
Show the journal entries with narrations necessary to correct the following errors:
Feb1.The sales day book had been undercast by 10.
Feb2 .A customers personal account has been correctly credited with 2 discount, but no
corresponding
entry was made in the discount column of the cash book.
Feb3 .Discounts allowed for July, amounting to 70 were credited to discount received account
instead of being debited to the discount account.
Feb4. A debit balance on the account of D Bird, a customer, was undercasted by 10 .
Date

Correcting Errors | 6

Details

Dr.

Cr.

Prepare a Suspense account using items from Feb1 Feb-4.

SUSPENSE A/C
Date

Details

Date

Details

Q. Which side of the trial balance has a deficit ? By how much ?

Q.Show the effect on trial balance and net profit the transactions from Feb1 Feb-5
caused.

Date

effect on trial balance

effect on net profit

Correcting Errors | 7

Exercise sum #4
Show the journal entries with narrations necessary to correct the following errors:
Feb 6 Discounts allowed during March amounting to 62 were posted to the credit of the discounts
received account.
Feb 7 The sales day book was overcast by 100.
Feb 8 Goods bought on credit from A Supplier for 5 had been posted to his account as 50.
Feb 9 S Kane, a customer, returned goods valued at 10. This had been entered in the sales returns
day book and posted to the debit of the customers account.
Feb 10 The sale on credit of various items of plant and machinery at their book value of 300 had
been recorded in the sales day book.
Feb 11 An item of cash discount allowed 2 had been correctly entered in the cash book but had not
been posted to the account of B Luckwood, the customer.
Feb 12 A new machine costing 70 had been posted to the debit of the repairs to machinery
account.
Feb 13 A credit note for 179 received from a supplier had been posted to the wrong side of his
account.
Feb 14 A cheque for 1,500, being rent received from Atlas Ltd, had only been entered in the cash
book.
Date

Correcting Errors | 8

Details

Dr.

Cr.

Prepare a Suspense account using items from Feb6 Feb-14.

SUSPENSE A/C
Date

Details

Date

Details

Correcting Errors | 9

Q. Which side of the trial balance has a deficit ? By how much ?

Q.Show the effect on trial balance and net profit the transactions from Feb6 Feb-14
caused.

Date

effect on trial balance

IGCSE JUNE 09
Correcting Errors | 10

effect on net profit

After preparing the draft trading and profit and loss account for Aidan Davis for the year
ended
31 March 2009, several errors and omissions have been discovered.
These are:
1. Drawings of 15000 taken from the businesss bank account during the year have been
credited to the bank account but debited to the wages account in error.
2. The balance of 1350 on the account of a debtor, A Patel, who had gone into liquidation
should have been written off as a bad debt.
3. It was decided to create a provision for doubtful debts equal to 2% of debtors as at
31 March 2009. Debtors at the year end totalled 30000 (including the balance stated in
2 above).
4. The purchase of a new vehicle on 1 April 2008, for use in the business, at a cost of 10000
had been posted in error to the purchases account. This item has not been included in the
current depreciation total for the year. Depreciation is provided on motor vehicles on a
25% straight line basis.
5. A rates bill for 600 covering the period 1 January 2009 to 30 June 2009 was paid on
31 December 2008. No adjustment has been made for this in the accounts.
6. An electric bill for 250 was outstanding on 31 March 2009. No adjustment has been
made for this in the accounts.

(a) Prepare journal entries for all the items opposite. Date your entries 31 March 2009
and include suitable narratives.
Date

Details

Debit

Credit

Correcting Errors | 11

Correcting Errors | 12

Correcting Errors | 13

(b) Prepare the amended trading and profit and loss account for the year ended 31 March
2009. (8)
Details

(c) Using the adjustments for accruals and prepayments as examples, evaluate the
importance of the prudence concept in the preparation of the final accounts.
(5)
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IGCSE , May 11
The following trial balance has been prepared by a trainee accounting clerk from the
books of Harsha Patel.
Correcting Errors | 15

Details
Bank balance

Debit
59000

Capital

Credit

87900

Carriage outwards

350

Closing stock*

3241

Drawings

27500

Fixtures and fittings

30000

Opening stock

2623

Provision for depreciation


fixtures and fittings

2500

Purchases

38950

Rent and rates

7500

Sales

65400

Wages and salaries


Suspense

10000
218

(a) Prepare a corrected version of Harshas trial balance, with an amended figure for
the suspense account.
Details
Bank balance
Capital

Correcting Errors | 16

Debit

Credit

Carriage outwards
Closing stock
Drawings
Fixtures and fittings
Opening stock
Provision for depreciation
fixtures and fittings
Purchases
Rent and rates
Sales
Wages and salaries
Suspense

After the corrected version of the trial balance was prepared, the following errors and
omissions were found in the accounting system.
During the year Harsha had invested a further 15 000 into the business. This had been
correctly entered into the business bank account but had not been entered
into the capital account.
In March 2010 some new fixtures had been purchased at a cost of 1 500; these
had been debited to the purchases account.
In December 2010 Harsha had received a refund of rates amounting to 882. This
had been correctly entered into the business bank account but no further entries
had been made.
Wages paid in December 2010 totalling 200 had been correctly entered in the
cash book, but had been debited in the wages account as 1 200.

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(b) Prepare journal entries to correct these errors and omissions. Narratives are not
required.
Date

Correcting Errors | 18

Details

Debit

Credit

(c) Prepare the suspense account, clearly showing the opening balance calculated in
part (a).
Suspense Account
Date

Details

Date

Details

Sample assessment paper problem


In the year ended 31 December 2007, the bookkeeper of Sanchez Palmer, wholesaler, made the
following errors.
(i)An invoice for 460 in respect of goods sold to B Ballearic, a supplier, was lost and no entries
made in the books.
(ii) The book-keeper intended to record a bad debt recovered, 500. He debited 500 to the cash
account and credited 50 to the bad debts recovered account.
(iii) On 1 July 2007, an insurance premium of 1 200 for the following 12 months was paid; no
adjustment was made for the amount paid in advance at 31 December 2007.
(iv) The total of the returns inward book was over-cast by 200.
(v) The total of the discount allowed column in the cash book, 150, was posted to the credit side of
the discount received account.
(vi) A cheque for 195 received from T Tramuntana on 24 April 2007, in full settlement of her
account, was entered correctly. No cash discount was involved. The cheque was dishonoured on 12
May 2007, but no entry for this was made in the books.
(a) You are asked to show the effect of each error on:
the agreement of the trial balance
the net profit for the year ended 31 December 2007.

Correcting Errors | 19

Complete the table below for each of the items (iii) to (vi). The answers to (i) and (ii) have been done
to show the layout.
Items
(i)

Trial balance

Net profit

No effect

(ii)

Debit side bigger by 450

Lower than it should be by


460
Lower than it should be by
450

****Prepare a Suspense account(where necessary) using items for items (I) to (vi)

SUSPENSE A/C
Date

Details

Date

Details

Q. Which side of the trial balance has a deficit ? By how much ?what is the balance on
suspense a/c?

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Additional page to jot down points


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