CORRECTION OF ERRORS

WEEK TEN DATE…………………….

TOPIC: CORRECTION OF ERRORS

CONTENT

  • Suspense Accounts
  • Correction of Errors

Errors made within the recording of the day-to-day transactions might be divided into these which aren’t revealed (disclosed) by the trial stability and people which consequence within the trial stability not balancing.

The place the trial stability complete don’t agree it’s ordinary to use the next fast examine record to find the errors.

  1. Test the additions of the trial stability.
  2. Test the addition of the stability of every ledger account.
  3. Test that every ledger account stability has been entered within the right column of the trial stability.
  4. Test that each ledger account stability has been entered within the trial stability.
  5. Search for a transaction equal to the distinction within the trial stability and examine {that a} double entry has been made for that transaction.
  6. Search for a transaction equal to half the distinction within the trial stability and examine if it has been entered twice on the identical aspect of the ledger somewhat than as soon as on either side.
  7. Test the double entry for each transactions entered within the books because the date of the final trial stability.

If after making use of the above fast examine record the errors should not discovered instantly, the trial stability is balanced quickly by inserting the distinction between the trial stability totals in a Suspense Account.

The Suspense Account is a short lived account through which the distinction on the trial stability is recorded till the errors are situated (found) and corrected.

The place the trial stability totals don’t agree and to keep away from any delay within the preparation of the ultimate accounts, a Suspense Account can be opened to document the distinction within the trial stability totals pending the time the error(s) are situated and corrected. Because the errors are discovered, they’re corrected via a journal entry (i.e. entry within the Normal Journal). The suitable entries are then made within the ledger accounts. When all of the errors have been discovered and corrected, the suspense account will shut mechanically.

Makes use of of the Suspense Account

  1. A Suspense Account is used to document distinction within the trial stability quickly till the errors are detected and corrected.
  2. Suspense Account can also be used when transactions are recorded within the books earlier than any determination has been made about their correct accounting remedy
  3. The Suspense Account gives an account to which an entry (i.e. one facet of a transaction) might be made till its right vacation spot (i.e. the account to which it must be posted) is thought

The right way to Open a Suspense Account

A Suspense Account is opened within the basic ledger with a stability on whichever aspect of the Suspense Account that can make the trial stability agree when the stability is inserted in it. For instance, if the whole of the credit score aspect of a trial stability is N6, 000 lower than the whole of the debit aspect, the Suspense Account might be opened with a credit score stability of N6, 000. When the Suspense Account stability is inserted within the trial stability, the trial stability will stability.[mediator_tech]

NB: As soon as a Suspense Account is opened, the ultimate accounts might be ready even when all of the errors haven’t been found. On this, case the stability on the Suspense Account will seem within the Steadiness sheet (as an asset if it’s a debit stability and as a legal responsibility if it’s a credit score stability).

The right way to Appropriate Errors

The correction of errors would require journal entries which might be posted to the ledger accounts.

  1. If the error being corrected doesn’t have an effect on the settlement of the trial stability, the journal and ledger entries is not going to contain the Suspense Account
  2. If the error being corrected impacts the settlement of the trial stability, the journal and ledger entries will contain the Suspense Account

Step (Processes) Concerned in Correction of Errors

To resolve find out how to right an error asks the next questions.

  1. How ought to the transaction have been recorded?
  2. How has the transaction been recorded?
  3. What sort of error has been dedicated by the book-keeper who recorded the transaction? i.e. will the error have an effect on or not have an effect on the settlement of the Trial Steadiness? As indicated above, this step may be very essential to point whether or not the Suspense Account might be concerned within the correction of the error or not.
  4. What entries are required to be handed to right the error?

In making use of the steps enumerated above, it’s helpful to recollect the next.

  1. An merchandise on the fallacious aspect of an account have to be corrected by an adjustment equal to twice the quantity of the unique error (as soon as to cancel the error and as soon as to put the merchandise on the proper aspect of the account).
  2. Some errors don’t have an effect on the double entry: an instance can be a debit stability on Hire Account N850 included within the trial stability as debit stability N650. To right the error, a one-sided entry must be made within the journal and the Suspense Account. Such errors don’t require to be corrected by debit and credit score entries.

EVALUATION

  1. Briefly clarify three makes use of of Suspense Account
  2. State seven errors that might be disclosed by the Trial Steadiness

Illustration:

Kehinde extracted a trial stability from her ledgers on 31st December 2017. The trial stability totals have been N23, 884 (debit) and N24, 856 (credit score). She positioned the distinction in a Suspense Account. Subsequent

investigation into the accounts revealed the next:

  1. The debit aspect of the Phone Account had been overstated by N200
  2. An bill despatched toAdejumo forN240 had been utterly omitted from the books.
  3. A cheque for N124 acquired from Diligent Enterprises had been posted to the debit of their account
  4. The acquisition of some workplace tools for N1,180 had been debited to Workplace Bills Account
  5. Reductions acquired, N90, had been posted to the purchases ledger however to not the Reductions Obtained Account.
  6. Hire paid, N800 had been credited to Hire Receivable Account.
  7. A refund of an insurance coverage premium, N60, had been recorded within the Money E book however no different entry had been made.
  8. A purchase order of workplace stationery,N220, had been debited to Purchases Account in error.[mediator_tech]
  9. A credit score stability of N30 within the purchases ledger had been omitted from the record of balances extracted from the ledger. The overall of the record had been included within the trial stability.
  10. Items returned to Prepared Shops had been credited to Prepared Shops Account and debited to Purchases Returns Account. The products had price N400

Required:

  1. Put together journal entries to right the errors indicated above
  2. Put together the Suspense Account exhibiting the opening stability and the correcting entries

Normal Journal

Dr Cr

N N

a. Suspense Account 200

Phone Account 200

being correction of error on overcast of N200 of the Phone Account

b. Adejumo 240

Gross sales Account 240

being correction of error on bill despatched to Adejumo omitted from

the books

c. Suspense Account 248

Diligent Enterprises 248

beingcorrection of error on cheque of N124 acquired from Diligent

enterprisesdebited to their account

d. Workplace Tools Account 1, 180

Workplace Bills Account 1, 180

being correction of error on workplace tools bought debited

to workplace Bills Account.

e. Suspense Account 90

Reductions Obtained Account 90

being correction of error on low cost acquired not posted to the

Reductions Obtained Account

f. Hire Receivable Account 800

Hire Payable Account 800

Suspense Account 1, 600

being correction of error on hire paid wrongly handled as hire acquired

g. Suspense Account 60

Insurance coverage Account 60

being correction of error on refund of insurance coverage omitted from the

Insurance coverage Account

h. Workplace Stationery Account 220

Purchases Account 220

being correction of error on buy of workplace stationery wrongly

debited to Purchases Account

i. Suspense Account 30

being memorandum entry to right a credit score stability within the purchases

ledger omitted within the Trial Steadiness

j. Prepared Shops 800

Purchases Returns Account 800

being correction of error on items returned to Prepared Shops wrongly

credited to their account[mediator_tech]

Suspense Account

N N

Distinction on Trial Steadiness 972 Hire 1, 600

Phone 200

Diligent Obtained 248

Reductions Obtained 90

Insurance coverage 60

Correction of commerce collectors 30

1, 600 1, 600

EVALUATION

  1. Simplified and Amplified Monetary Accounting Train 2, 3, 4, 5X, 6 and 9
  2. Important Monetary Accounting Train 12.2, 12.5A, 12.8A and 12.9A

READING ASSIGNMENT

  1. Simplified and Amplified Monetary AccountingPage 134 – 154
  2. Important Monetary Accounting Web page 90 – 105

GENERAL EVALUATION QUESTION

  1. WAEC JUNE SSCE Previous Questions

June 1992 Query 2

June 1999 Query 6

June 2010 Query 5

June 2012 Query 6

June 2017 Query 5

WEEKEND ASSIGNMENT

  1. Which of the next errors will have an effect on the totals of a trial stability A. compensating errors

B. full reversal of entry C. error of unique entry D. omission a ledger stability within the trial stability

  1. Pending the situation of an error, the distinction disclosed in a trial stability is quickly handled in A. Suspense Account B. Buying and selling Account C. Management Account D. Revenue and Loss Account
  2. Which of the next accounts has a credit score stability A. Money B. Capital C. Drawing D. Premises
  3. Purchases Account is overcast by N200, whereas wages Account is undercast by N200. That is A. an error of omission B. a compensating error C. an error of fee D. an error of precept
  4. Which of the next is entered within the Normal Journal A. purchases of products B. sale of products on credit score C. returns inwards D. acquisition of fastened belongings

THEORY

  1. What’s a Suspense Account
  2. State three makes use of of a Suspense Account