AFU 07202

CORRECTION OF
ERRORS AND
SUSPENSE
ACCOUNT
 Learning Objectives
Errors not affecting trial balance agreement
After you have studied this chapter, you should be able to:
• correct all errors which do not affect trial balance totals being
equal
• distinguish between the different kinds of errors that may arise

Suspense accounts and errors

After you have studied this chapter, you should be able to:
• explain why a suspense account may be used
• create a suspense account in order to balance the trial balance
• correct errors using a suspense account
• recalculate profits after errors have been corrected
• explain why using a suspense account is generally inappropriate
 Analyze each transaction
Recap: and event form source
documents
Analyzing
and
Record relevant transactions
Recording and events in a journal
Process
Post journal information to
ledger accounts

Prepare and analyze the trial balance

DISCOVER
ERROR!!!
 Errors
 Most errors are found after preparing
the trial balance. Errors cannot be
crossed out or erased.
 If there are errors, the trial balance
will not agree.
 But there are some errors which will
not affect the agreement of the trial
balance totals.
 Steps in Analyzing and
Correcting Errors
1st Step 1. Determine the correct journal entry
and the appropriate debits and
credits.

2nd Step 2. Analyze the original errors journal

entry and determine all the debits
and credits that were recorded.

3rd Step 3. Preparing the correcting entries.

 Errors NOT Revealed by Trial
Balance
1. Errors of omission – A transaction is
completely omitted from the books.
2. Errors of commission – An entry posted
at the correct amount but to the wrong
person’s account.
3. Errors of principle – An entry is made in
the wrong class of account.
4. Complete reversal of entries – An
account that should be debited is
credited and vice versa.
5. Compensating errors – where errors
cancel each other out.
6. Errors of original entry – The original
figure incorrectly entered although
the correct double-entry principle
has been observed.
 CORRECTION OF ERRORS
- Errors of Omission
When a transaction has been completely omitted from the books, it can
be corrected by simply making a double-entry to record the
transaction.
EXAMPLE
A cash payment of Tshs 1,600 for rent has been omitted from the books.

1st Step Correction:

Error:
Correct entry:
Dr
DrDr Rent
Rent Account
Rent
Account
Account CrCr
Cr
Cash
Cash Tshs 1,600
2nd Step Cash Tshs
1,600
DrDr Cash
Cash
Account
Account CrCr
3rd Step Rent
Rent Tshs 1,600
Dr Cash Account
Cr
 CORRECTION OF ERRORS
- Errors of Omission
The journal entry is as follows:
General Journal
Particulars Dr Cr
(Tshs) (Tshs)
1st Step Actual: Rent 1,600
Cash 1,600
Error: Rent 0
2 Step
nd
Cash 0
Correction: Rent 1,600
3rd Step Cash 1,600
Being correction of error –
payment for rent omitted
from books
 CORRECTION OF ERRORS
- Errors of Commission
An entry has been posted to the wrong account of the same category.
EXAMPLE
A sale of Tshs 150 to Folin Brothers has been posted to Lin
Associates.

Correction:
1st Step Error:
Correct entry:Debtor- Folin Brother
Dr Cr
Dr
Dr
Debtor- Debtor- Lin Associates
Debtor-Folin Brother Cr Cr
Sales
Lin Associates Tshs
Sales Tshs
Tshs150
150
X
2nd Step
150
DrDr Sales
Sales CrCr
3rd Step Dr Debtor- Lin Associates
Debtor
Debtor- Cr
Debtor-
-Folin
Lin Associates Tshs150
Brother Tshs 150 √
 CORRECTION OF ERRORS
- Errors of Commission
The journal entry is as follows:
General Journal
Particulars Dr Cr
(Tshs) (Tshs)
1st Step Actual: Folin Brother 150
Sales 150
Errors: Lin Associates 150
X
2nd Step Sales 150 √
Correction: Folin Brother 150
3rd Step Lin Associates 150
Being correction of error –
Lin Associates wrongly
debited
 CORRECTION OF ERRORS
- Errors of Principle
An entry is posted to an account of a different category e.g. an
expense is recorded as an asset.
EXAMPLE
Repairs to vehicles amounting to Tshs 1,000 has been posted to
Vehicles Account.

Correction:
Error:
Correct entry:
1st Step DrDr Repair
Vehicleexpense
RepairAccount
expense Cr CrCr
Cash/
Vehicle
Cash/
Tshs1,000
acct payable
Acct. Tshs
payable 1,000
Tshs 1,000
2nd Step X
Dr
Dr Dr Vehicle
Cash /account
Cash/ Accountpayable
payable Cr
Cr
3rd Step
Vehicle
Repair
Repair Tshs
Tshs1,000
Tshs 1,000
1,000
√
 CORRECTION OF ERRORS
- Errors of Principle
The journal entry is as follows:
General Journal
Particulars Dr Cr
(Tshs) (Tshs)
1st Step Actual: Repair 1,000
Cash/Accounts payable 1,000
Errors: Vehicle 1,000
2nd Step Cash/Accounts payable
√
X 1,000
Correction: Repair 1,000
3rd Step Vehicle 1,000
Being correction of error –
repairs to vehicles posted
to Vehicles Account
 CORRECTION OF ERRORS
- Errors of Original Entry
A wrong amount is recorded in a book of original entry or a
document such as an invoice and subsequently posted to the ledger
accounts
EXAMPLE
A purchase of Tshs 665 from Paper Manufacturers Ltd has been
entered in the Purchases Journal and posted to the ledger as Tshs
656.
Correct entry:
Correction:
Error:
1 Step
st
Dr Dr
Dr Purchases
Purchases
Purchases Cr
Cr
Cr Paper
Paper MfgMfg
LtdLtd Tshs
Tshs
2nd Step 656665 Mfg Ltd
Paper Tshs 9

Dr Dr Paper
Paper Manufacturers
Manufacturers Ltd
Ltd Cr
3rd Step Dr Paper Manufacturers Ltd Cr
Cr Purchases Tshs
Purchases
665 Tshs 656
Repair Tshs
 CORRECTION OF ERRORS
- Errors of Original Entry
The journal entry is as follows:
General Journal
Particulars Dr Cr
(Tshs) (Tshs)
1st Step Actual: Purchases 665
Paper Manufacturers Ltd 665
Errors: Purchases 656
2nd Step Paper Manufacturers Ltd 656
Correction: Purchases 9
3rd Step Paper Manufacturers Ltd 9
Being correction of error –
purchases understated by
Tshs 9
 CORRECTION OF ERRORS
- Compensating Errors
An error on the debit side is compensated by an error of equal
amount on the credit side.
EXAMPLE
Rent revenue account is overcast by Tshs10, so as the Wages
Account..
Correction
Dr Rent Revenue Account Cr
1st Step
Cash
Wages Tshs. Tshs.350
2nd Step 10
Dr Wages Account Cr
3rd Step
Cash Tshs 600 Rent revenue Tshs10
 CORRECTION OF ERRORS
- Errors of Principle
The journal entry is as follows:
General Journal
Particulars Dr Cr
(RM) (RM)
1st Step Actual:

Errors:
2nd Step
Correction: Rent revenue 10
3rd Step Wages 10
Being correction of error –
rent received and wages
paid overstated by $10
each
 CORRECTION OF ERRORS
- Complete Reversal of Entries
When recording a transaction, the debit entry and the credit entry
are reversed.
EXAMPLE
A payment of Tshs 700 to a creditor, Martin, was debited to the
Cash account and credited to Martin’s Account.
Error:
Correction:
Correct entry:
1st Step Dr Dr
Dr Cash
Martin
Martin Cr
Cr Cr
Martin
Cash
Cash Tshs 700
Tshs
Tshs1,400
700
2nd Step X
Dr Dr Cash
Cash Cr Cr
Dr Martin Cr
3rd Step
Martin
Cash
Martin Tshs
Tshs
Tshs 700
700
1,400
√
 CORRECTION OF ERRORS
- Errors of Principle
The journal entry is as follows:
General Journal
Particulars Dr Cr
(Tshs) (Tshs)
1st Step Actual: Martin 700
Cash 700
Errors: Cash 700 X
2nd Step Martin 700 X
Correction: Martin 1400
3rd Step Cash 1400
Being correction of error –
payment to Martin debited
to Cash Account and
credited to Martin’s
account
 Exercise 1
Record the entries needed in the journal to correct the
following errors. Narratives are not required:
(a) Motor expenses of Tshs 56 entered incorrectly in the
Motor Vehicles account.
(b) Insurance Tshs 98 paid by cash should have been
entered as Tshs 89.
(c) Sale of goods for Tshs 375 to S Lin entered into the
account of S Lim.
(d) Private withdrawal of Tshs 150 cash had been debited
to Sundry expenses account
(e) Returns outwards of Tshs 75 had been credited to
Returns inwards by mistake.
(f) Purchase of stock on credit from D Wing for Tshs. 115
had been completely omitted.
BREAK
Errors Revealed by Trial Balance
1. Errors in calculation – Miscalculation of the trial
balance totals or the net account balances.
2. Errors of omission of one entry – Omission of
either the debit or credit entry of a transaction.
3. Posting to the wrong side of an account.
4. Errors in amount – debit entry of a transaction
differs in amount with the credit entry.

Note: Suspense account is opened to take care of

errors which have caused an imbalance in
the Trial Balance.
 CORRECTION OF ERRORS
- Suspense Account

• A Suspense Account is opened to take

care of errors which have caused an
imbalance in the Trial Balance.
• When they are discovered, they have to
be corrected by a double-entry, one in
the Suspense Account and the other in
the account concerned.
 CORRECTION OF ERRORS
- Suspense Account
EXAMPLE
• The credit side of a Trial Balance is short of Tshs.100.
• A Suspense Account is temporarily opened.
• The difference between the two sides in the Trial
Balance is entered in this account.

Trial Balance as at 31 December 2019

Dr (Tshs) Cr (RM)
Totals 95,600 95,500
Suspense Account 100
95,600 95,600
 CORRECTION OF ERRORS
- Suspense Account
• The Suspense Account will have a credit
balance when the credit total in the Trial
Balance is short and a debit balance when
the debit total is short.

Dr Suspense Account Cr

Dec 31 Difference in books Tshs.100

Errors Affecting TB Agreement and
their Correction
• Errors which cause an imbalance in the Trial
Balance affect only one side of an account.
• This class of errors requires only one entry,
either on the DR or CR side, to correct them.
• The other entry has to be made in the
Suspense Account, thus adhering to the
double-entry principle.
 Errors Affecting TB Agreement
and their Correction
EXAMPLE
• A sale of Tshs.80 to Linda has been credited to Sales
Account but omitted from Linda’s account.
• The debit side of the Trial Balance was later found to
have a deficiency of Tshs.80.

Dr Sales Account Cr
Linda
Tshs.80
Dr Suspense Account Cr
Difference in books
Tshs.80
 Errors Affecting TB
Agreement and their
Correction
To correct the error...
Dr Linda
Cr

Suspense Account
Dr Tshs.80 Suspense Account
Cr
Difference in books Tshs. 80
Linda
Tshs.80
 Errors Affecting TB
Agreement and their
Correction
The journal entry is as follows:

General Journal
Date Particulars Dr Cr
(Tshs) (Tshs)
Linda 80
Suspense Account 80
Being correction of error – amount
not posted to Linda’s account
 Correction of an Error Requiring
More Than Two Entries
. EXAMPLE
• Returns outwards RM100 to Samy has been correctly
entered in Samy’s account but wrongly debited to
Purchases Account.

Dr Purchases Account Cr
Samy RM100 Suspense Account RM100
Dr Returns Outwards Account Cr
Suspense Account RM100
Dr Suspense Account Cr
Purchases RM100 Difference in books
Return outwards RM100 RM200
Correction of an Error Requiring
More Than Two Entries
The journal entry is as follows:
General Journal
Date Particulars Dr ($) Cr ($)
Suspense Account 200
Purchases 100
Returns Outwards 100
Being correction of error –
returns outwards wrongly posted
to Purchases Account
 Exercise 2
The following errors were made:
i. Tshs.78 cash paid for stationery was entered in
the Stationery Account and the Cash Account as
Tshs. 87.
ii. Tshs.400 paid for repairs for machinery was
debited to Machinery Account.
iii. Sales Account and Purchases Account were
overcast by Tshs.300 each.
iv. Commission received Tshs.1,500 was wrongly
debited to the Commission Revenue Account and
credited to the Cash Account.

What entries should be made to correct these errors?

 Exercise 3
The debit total in the Trial Balance exceeded the credit total by
Tshs.32. On checking the books, the following errors were found:
i. Rent received, Tshs.400 had been recorded on the payment side
of the Cash Book and debited to the Rent Expenses Account.
ii. Goods amounting to Tshs.70, returned to Alex, had been treated
as sales. The amount was debited to the account of a debtor, B.
Fowler and credited to the Sales Account.
iii. A cheque of Tshs. 51 received from K. Jack had been debited
in error to R. Jackson’s account. The entry in the Bank Account
was correct.
iv. A purchase of equipment, paid by a cheque of Tshs.1,100, was
entered as Tshs.1,000 in the books.
v. The remainder of the difference in the books was due to an error
in over casting the Sales Journal.

Show how these errors could be corrected.

 Exercise 4
You have extracted a trial balance on 31 December 2006 which
failed to agree by Tshs.350, a shortage on the debit side of the
trial balance. A suspense account was opened for the
difference. The following errors were later found:
– The purchases daybook had been undercast by Tshs.200.
– The insurance account had been undercast by Tshs.50.
– Sale of equipment of Tshs.400 had been credited in error to
the Sales account.
– Sales account had been overcast by Tshs.175
– Discounts received had been undercast by Tshs.75

You are required to:

(a) Show the journal entries necessary to correct the errors.
(b) Draw up the suspense account after the errors have been
corrected