Theory question 106
Correction of Errors and Suspense AccountAde presents a trial balance which showed a difference of ₦388. This has been transferred to the debit side of a Suspense Account. Further investigations revealed the following:
(i) Purchase of office equipment for ₦850 was debited to office expenses account.
(ii) Sales day book was overcast by ₦1,200.
(iii) An invoice for ₦658 received from a supplier was entered correctly in the purchase day book, but was posted to the debit side of the supplier's account.
(iv) A credit note for ₦720 issued to a debtor was entered in the returns inwards book at ₦270 and was posted to the ledger accordingly.
(v) A debtor who owed a sum of ₦420 died without leaving anything behind. This amount was written off his account as bad debt but no other entry was made in the books.
(vi) Cash drawings amounting to ₦900 have not been recorded in the books.
(vii) A payment of ₦280 for electricity was entered correctly in the cash book but as ₦820 in the electricity account.
(viii) A motor vehicle was bought for ₦1,500 by cheque. This transaction was only recorded in the cash book.
(ix) Discounts received ₦876 have not been posted from the cash book to ledger.
You are required to show the: (a) Journal entries necessary to correct the errors; (b) Suspense Account.
Show the model answer
(a) Journal (Dr | Cr, ₦)
(i) Dr Office Equipment 850; Cr Office Expenses 850 (error of principle)
(ii) Dr Sales 1,200; Cr Suspense 1,200 (sales overcast)
(iii) Dr Suspense 1,316; Cr Supplier (creditor) 1,316 (658 wrongly debited, must be credited: 2 × 658)
(iv) Dr Returns Inwards 450; Cr Debtor 450 (credit note understated by 720 − 270)
(v) Dr Bad Debts 420; Cr Suspense 420 (missing debit entry)
(vi) Dr Drawings 900; Cr Cash 900 (omission)
(vii) Dr Suspense 540; Cr Electricity 540 (820 − 280 over-debited)
(viii) Dr Motor Vehicle 1,500; Cr Suspense 1,500 (missing debit entry)
(ix) Dr Suspense 876; Cr Discounts Received 876 (credit side not posted)
Each entry with a short narration.
(b) Suspense Account
Dr: difference in trial balance 388; creditor 1,316; electricity 540; discounts received 876 = 3,120
Cr: sales 1,200; bad debts 420; motor vehicle 1,500 = 3,120
The account balances (closes) at ₦3,120.
Only errors that upset the trial balance go through the suspense account; (i), (iv) and (vi) do not.