Correcting errors.Booklet+lecture

Lecture, Formats and Exercise Booklet

Correcting Errors & Suspense

Batch – Jan/May 201 _

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

Correcting Errors | 1

Student nameID #

IGCSE Accounting Course Instructor: Manarat Ahmed

Correcting Errors

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 accountFor, 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

Suspense accountA 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 XADD : Sales / Income/Return out/Goods drawings undercast X Purchase / Expenses/Return in overcast XLESS : Sales/Income/Return out overcast (X) Purchase / Expenses/Return in/Goods drawings undercast (X)

Revised/Corrected Net profit X

Invoice issued = salesCredit note issued = sales return/return inwardsInvoice received = purchaseCredit note received = 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 Mone’s account.Jan 11. The purchase of a machine on credit from J Frank for £619 had been completely omitted fromour books.Jan 12. The purchase of a computer for £550 had been entered in error in the Office Expensesaccount.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 andthe debit side of T Blair’s account.Jan 16. A purchase of goods £372 had been entered in error on the debit side of the Drawingsaccount.Jan 17. Discounts Allowed £48 had been entered in error on the debit side of the Discounts Receivedaccount.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 Roy’s account.Jan 19. A cheque of £94 paid for printing had been entered in the cash column of the cash bookinstead of in the bank column.Jan 20.Sale of goods £734 on credit to D Rolls had been entered in error in D Rollo’s 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 ofG Boyd’s 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 ofthe 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.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 Struton’s account in error.Jan 29. The water rates on the proprietor’s private house, £750, has been paid by the business anddebited to the business rent account.Jan 30 £720 included in the wages account was included in the motor expense account.



Exercise sum # 3



Feb1.The sales day book had been undercast by £10.Feb2 .A customer’s personal account has been correctly credited with £2 discount, but no correspondingentry 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 .



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 ?

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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


Exercise sum #4


Feb 6 Discounts allowed during March amounting to £62 were posted to the credit of the discountsreceived 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 customer’s 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.



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

SUSPENSE A/C



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

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

Date effect on trial balance effect on net profit


IGCSE JUNE 09 After preparing the draft trading and profit and loss account for Aidan Davis for the year ended31 March 2009, several errors and omissions have been discovered. These are:1. Drawings of £15000 taken from the business’s bank account during the year have beencredited 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 liquidationshould 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 at31 March 2009. Debtors at the year end totalled £30000 (including the balance stated in2 above).

4. The purchase of a new vehicle on 1 April 2008, for use in the business, at a cost of £10000had been posted in error to the purchases account. This item has not been included in thecurrent depreciation total for the year. Depreciation is provided on motor vehicles on a25% straight line basis.

5. A rates bill for £600 covering the period 1 January 2009 to 30 June 2009 was paid on31 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 beenmade for this in the accounts.

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

Date Details Debit Credit


(b) Prepare the amended trading and profit and loss account for the year ended 31 March2009. (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 thebooks of Harsha Patel.

Details Debit CreditBank balance 59000

Capital 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 10000

Suspense 218


(a) Prepare a corrected version of Harsha’s trial balance, with an amended figure forthe suspense account.

Details Debit CreditBank balance

Capital

Carriage outwards

Closing stock

Drawings

Fixtures and fittingsOpening 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 andomissions 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 enteredinto the capital account.• In March 2010 some new fixtures had been purchased at a cost of £1 500; thesehad been debited to the purchases account.• In December 2010 Harsha had received a refund of rates amounting to £882. Thishad been correctly entered into the business bank account but no further entrieshad been made.• Wages paid in December 2010 totalling £200 had been correctly entered in thecash book, but had been debited in the wages account as £1 200.

(b) Prepare journal entries to correct these errors and omissions. Narratives are notrequired.

Date Details Debit Credit


(c) Prepare the suspense account, clearly showing the opening balance calculated inpart (a).

Suspense Account



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.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 Trial balance Net profit

(i) No effect Lower than it should be by £460

(ii) Debit side bigger by £450 Lower than it should be by £450


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

SUSPENSE A/C


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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Correcting errors.Booklet+lecture

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