Theory question 106
Correction of Errors and Suspense Account6. An inexperienced Book-keeper prepared a Trial Balance which failed to agree. The difference of N85 credit was kept in a Suspense Account. The following errors were later discovered: (a) A cash payment of N180 had been posted as a receipt in the bank column of the cash book (b) The Sales Account was overcast by N350 and the Purchases Account was also overcast by N350 (c) A return inwards of N190 was not recorded in the books. (d) Bank charges of N185 had been posted into the cash book. No entry was made elsewhere in the books. (e) The opening balance of a debtor's account had been brought down as N1,785 instead of N1,875 (f) An item of fixed asset sold for N2,500 had been debited to cash and included in sales. You are required to (i) prepare journal entries to effect the necessary corrections. (ii) write-up the Suspense Account.
Show the model answer
(i) Journal
(a) Dr Suspense 360; Cr Bank 360 – a payment of 180 entered as a receipt overstates the bank by twice 180.
(b) Dr Sales 350; Cr Purchases 350 – compensating errors, no effect on suspense.
(c) Dr Returns inwards 190; Cr Debtor 190 – omission, no effect on suspense.
(d) Dr Bank charges 185; Cr Suspense 185 – the ledger entry was missing.
(e) Dr Debtor 90; Cr Suspense 90 – balance understated by 1,875 − 1,785.
(f) Dr Sales 2,500; Cr Fixed asset disposal 2,500 – proceeds of a fixed asset are not sales.
(ii) Suspense account: Dr bank (a) 360. Cr balance b/d 85; bank charges (d) 185; debtor (e) 90. Totals 360 = 360, so the suspense account is closed.
Only errors that made one side of the trial balance bigger than the other go through the suspense account.