ERROR CORRECTION Error Revealed by the Trial Balance (Trial Balance is not balance)
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Transcript of ERROR CORRECTION Error Revealed by the Trial Balance (Trial Balance is not balance)
ERROR CORRECTION
Error Revealed by the Trial Balance (Trial Balance is not balance)
ERROR CORRECTION
• The possible cause are• Arithmetic errors (casting error)• Posting errors (eg both are debited)• Extraction errors (listed in the wrong side of
Trial Balance)• Omission of part of an entry• Debit and credit sides are entered with
different amount
ERROR CORRECTION
• If the error cannot be found until the time to prepare the Financial Statements, a suspense account is raised in order to “balance” the Trial Balance.
ERROR CORRECTION
• Example 1DT (RM) CR (RM)
Assets 10,000
Liabilities 7,000
Capital 2,000
Expenses 1,500
Revenues 2,000
Total 11,500 11,000
Suspense Account 500
Total 11,500 11,500
ERROR CORRECTION
Suspense Account Difference in book 500
Statement of Financial PositionAssets 10,000 Liabilities 7,000
Capital 2,500
Suspense Ac 500
10,000 10,000
ERROR CORRECTION
• Example 2DT (RM) CR (RM)
Assets 9,000
Liabilities 7,000
Capital 2,000
Expenses 1,900
Revenues 2,000
Total 10,900 11,000
Suspense Account 100
Total 11,000 11,000
ERROR CORRECTION
Suspense AccountDifference in book 100
Statement of Financial PositionAssets 9,000 Liabilities 7,000
Capital 2,100
Suspense Ac 100
9,100 9,100
ERROR CORRECTION
• Once the error has been found, the Suspense Account should be reversed. The entry required depends on the nature of the error
• Arithmetic Error (casting error) Assets + Expenses = Capital + Liabilities + Revenue
If either Asset or Expense is under (over) casted, you need to DT (CR) the account and CR (DT) the Suspense Account
ERROR CORRECTION
• Arithmetic Error Assets + Expenses = Capital + Liabilities + Revenue
If Capital, Liabilities or Revenue is under (over) casted, you need to CR (DT) the account and DT (CR) the Suspense Account
(page 159 of Roshayani)
ERROR CORRECTION
• Posting Error (both entries are either DT or CR)• Example: Payment of salary of RM5,000 was
recorded as DT to both Salary and Bank accounts
• Adjustment: Salary Account = OK, Bank Account need to be CR by RM10,000 –
why not RM5,000?
DT (RM) CR (RM)
Suspense Ac 10,000
Bank 10,000
ERROR CORRECTION
• Extraction Error (listed in the wrong side of Trial Balance)
• Example: Accounts Payable of RM2,400 was listed in the debit column of the Trial Balance
• Suspense account of RM??? was credited• Adjustment: Amend the Trial Balance (put the
Acc Payable in the credit side) and debit Suspense Account by RM???
ERROR CORRECTION
• Omission of Part of an Entry• Example: Payment to Azhar Ent (creditor) of
RM1,000 was only credited in the bank account
• Trial Balance was not balance by how much? • Was suspense Account debited or credited?
ERROR CORRECTION
• Omission of Part of an Entry• Example: Payment to Azhar Ent (creditor) of RM1,000
was only credited in the bank account• Credit balance of Trial Balance will be more by
RM1,000• Suspense Account was debited by RM1,000• Adjustment:
DT (RM) CR (RM)
Azhar Ent 1,000
Suspense Account 1,000
ERROR CORRECTION
• Debit and credit sides are entered with different amount
• Cash sales of RM1,030 was correctly debited in the Cash Account but entered as RM1,300 in the Sales Account
• Amount in which side of Trial Balance is more? What is the amount?
• The Suspense Account is debited or credited?
ERROR CORRECTION
• Debit and credit sides are entered with different amount
• Cash sales of RM1,030 was correctly debited in the Cash Account but entered as RM1,300 in the Sales Account
• Trial Balance: Credit more by 1300-1030: 270• Suspense Account: Debit balance RM270• Adjustment?