Theory question 104
Correction of Errors and Suspense AccountJames Aluko, a trader engaged the services of an inexperienced book keeper, The book-keeper produced the following Balance Sheet as at 31st December, 1993.
Capital ₦50,224; Loan – Johnson 12% ₦20,000; Trade Creditors ₦26,000; Accruals ₦282; Bank Overdraft ₦14,634; Profit and Loss Account ₦18,400; total ₦129,540
Fixed Assets ₦72,208; Stock ₦18,826; Debtors ₦26,016; Prepayments ₦600; Drawings ₦8,260; Suspense Account ₦2,930; Cash ₦700; total ₦129,540
An investigation into the accounts revealed the following: (a) The Suspense Account balance represent the difference on the Trial Balance (b) The Purchases Day Book total for October of ₦8,240 was posted to Purchases Account as ₦8,420 (c) Closing Stock were overcasted by ₦2,000 (d) Cash in hand should be ₦110 (e) Fixtures and fittings Account balance of ₦4,600 has been omitted from the Trial Balance (f) Interest for a half year on Loan Account has not been paid and no provisions made for it (g) An invoice for ₦500 has been included in stock and Purchases but not posted to the Personal Account. (h) A sales Returns of ₦200 has been debited to Adewale's Account.
You are required to prepare: (i) Suspense Account and (ii) A Revised Balance Sheet as at 31st December 1993.
Show the model answer
(i) Suspense Account: Dr balance b/d 2,930; purchases overcast (8,420 − 8,240) 180; cash overstated (700 − 110) 590; creditor not posted 500; Adewale (200 × 2) 400; total 4,600 / Cr fixtures and fittings omitted 4,600
Profit adjustment: 18,400 + 180 − stock overcast 2,000 − half-year loan interest (12% × 20,000 × ½) 1,200 = ₦15,380
(ii) Revised Balance Sheet as at 31 December 1993: fixed assets 72,208 + 4,600 = 76,808; stock 16,826; debtors (26,016 − 400) 25,616; prepayments 600; cash 110; total ₦119,960
Capital 50,224 + 15,380 − drawings 8,260 = 57,344; 12% loan 20,000; trade creditors 26,500; accruals 282 + loan interest 1,200; bank overdraft 14,634; total ₦119,960
Errors (c) and (f) change profit but not the suspense account; drawings are deducted from capital, not shown as an asset.