- 10 Marks
Question
The trial balance for Aboadze Ltd for the year ended 31 December 2022 failed to agree, showing a difference of GH¢3,600, which was credited to the suspense account. The draft account reported a net profit of GH¢435,000.
During 2023, the following errors were identified:
- GH¢30,000 received from the sale of old machinery was incorrectly recorded in the sales account.
- The purchase day book was overstated by GH¢48,000.
- A private purchase by the director worth GH¢36,000 was included in the company’s purchases.
- Bank charges of GH¢14,400 were recorded in the cash book but not posted to the bank charges account.
- A sale of GH¢207,000 to Kofi was correctly entered in the sales day book but posted as GH¢270,000 in the personal account.
- Discount received of GH¢13,500 was incorrectly posted to the debit side of the discount allowed account.
- Wages of GH¢120,000 paid were not posted from the cash book.
Required:
i) Show the journal entries to correct the errors.
ii) Write up the suspense account to eliminate the errors.
iii) Prepare a statement to show the revised profit.
Answer
i) Journal Entries to Correct Errors
| Date | Account | Dr (GH¢) | Cr (GH¢) |
|---|---|---|---|
| 1 | Sales | 30,000 | |
| Asset Disposal | 30,000 | ||
| 2 | Purchases | 48,000 | |
| Suspense Account | 48,000 | ||
| 3 | Drawings | 36,000 | |
| Purchases | 36,000 | ||
| 4 | Bank Charges | 14,400 | |
| Suspense Account | 14,400 | ||
| 5 | Suspense Account | 63,000 | |
| Kofi’s Account | 63,000 | ||
| 6 | Suspense Account | 27,000 | |
| Discount Received | 13,500 | ||
| Discount Allowed | 13,500 | ||
| 7 | Wages | 120,000 | |
| Suspense Account | 120,000 |
ii) Suspense Account
| Dr (GH¢) | Cr (GH¢) |
|---|---|
| Balance b/f | 3,600 |
| Purchases | 48,000 |
| Discount Allowed | 13,500 |
| Discount Received | 13,500 |
| Kofi | 63,000 |
| Bank Charges | 14,400 |
| Wages | 120,000 |
| Total | 138,000 |
iii) Revised Profit Calculation
| Description | GH¢ |
|---|---|
| Initial Net Profit | 435,000 |
| Adjustments: | |
| Add: Sales Correction | 30,000 |
| Less: Bank Charges | (14,400) |
| Less: Wages Omitted | (120,000) |
| Less: Private Purchase | (36,000) |
| Less: Overstated Purchases | (48,000) |
| Less: Discounts Error | (13,500) |
| Revised Net Profit | 381,600 |
- Topic: Correction of errors
- Series: Nov 2024
- Uploader: Salamat Hamid