FA – L1 – Q60 – Correction of Errors

Prepare journal entries to correct errors in a trial balance and clear a suspense account for a company with a debit-credit imbalance.

Question

The accountant of Apex Chemical Solutions has prepared a trial balance, but has found that the total of debit balances is GH₵864,600 and the total of credit balances is GH₵862,150.

On investigation, he discovers the following errors in the book-keeping:

(1) Total purchases in the period were recorded at GH₵100 below their correct value, although the total value of trade payables was correctly recorded.

(2) Total telephone expenses were recorded at GH₵1,000 above their correct amount, although the total value of the amounts payable was correctly recorded.

(3) Purchase returns of GH₵550 were recorded as a debit entry in the sales returns account, but the correct entry had been made in the trade payables control account.

(4) Equipment costing GH₵2,000 had been recorded as a debit entry in the repairs and maintenance account.

(5) Rental expenses of GH₵5,490 were entered incorrectly as GH₵5,940 in the expense account but were entered correctly in bank account in the ledger.

(6) Bank charges of GH₵200 have been omitted entirely from the ledger.

Required

Prepare journal entries for the correction of the errors.

Open a suspense account. Record the appropriate corrections in the suspense account, so that the balance on this account is eliminated.

Answer

Financial accounting
60 APEX CHEMICAL SOLUTIONS

Transaction		Debit GH₵	Credit GH₵
1	Purchases	100
	Suspense account		100
Correction of error: purchases under-stated by GH₵100.
2	Suspense account	1,000
	Telephone expenses		1,000
Correction of error: telephone expenses over-stated by GH₵1,000.
3	Suspense account	1,100
	Purchase returns		550
	Sales returns		550
Correction of error. Purchase returns of GH₵550 incorrectly recorded as a debit entry in sales returns.
4	Equipment	2,000
	Repairs and maintenance		2,000
Correction of error. Equipment purchase costs incorrectly recorded as repairs and maintenance expenses
5	Suspense account	450
	Rent expenses		450
Correction of error: rent expenses over-stated by GH₵450.
6	Interest expense	200
	Bank account		200
Transaction omitted from the ledger.

Suspense account
	GH₵		GH₵
Telephone expenses	1,000	Opening balance (864,600-862,150)	2,450
Purchase returns	550	Purchases	100
Sales returns	550
Rent expenses	450
Total	2,550	Total	2,550

Tutorial notes (1) In the trial balance, total debits exceed total credits by GH₵2,450. A suspense account is therefore opened with a credit balance of GH₵2,450, to make the total debits and credits equal. (2) It helps to think about the ledger account that needs correcting first, and then make the suspense account entry as the matching debit or credit. For example, since purchases were under-stated in the purchases account, the correction must be to increase the debit side of the purchases account by GH₵100. The matching double entry is a credit in the suspense account. (3) You also need to recognise that one of the errors and the omission can be corrected without using a suspense account, because the error/omission has not made the total debits and credits unequal.

Tags: Correction of Errors, Double Entry Bookkeeping, Journal entries, suspense account, Trial Balance
Level: Level 1

Topic: Correction of Errors

Uploader: Samuel Duah