- 15 Marks
FA – L1 – Q63 – Correction of Errors
Question
The trial balance prepared by B.B. Ventures showed a difference of GH₵47,060, which was put on the credit side of a suspense account. An investigation disclosed that:
(i) The total of purchase return day book amounting to GH₵16,160 had not been posted to the ledger.
(iii) The sales account had been added short by GH₵10,000.
(iv) An asset bought four years ago for GH₵7,000 and depreciated to GH₵1,200 had been sold for GH₵1,500 at the beginning of the year. The receipt of cash has been posted in the bank book but corresponding entries have not been recorded.
(v) A credit sale of GH₵1,470 had been credited to the customer’s account as GH₵1,740. An irrecoverable debt of GH₵1,560 has to be written off. Allowance for receivables is to be maintained at 10% of receivables. Receivables appearing in the trial balance are GH₵23,390, and the allowance for receivables account shows a credit balance of GH₵2,320.
(vi) A sub-total of GH₵29,830 on the list of closing inventory had been carried over as GH₵29,380, and another sheet had been overcast by GH₵1,000.
Required:
(a) Prepare journal entries to correct the above errors. (Narrations are not required)
(b) Explain why it is important that the accountant of B.B. Ventures behaves in an ethical manner when preparing financial statements.
Answer
(A)
| General Journal | Dr. (GH₵) | Cr. (GH₵) |
|---|---|---|
| Purchase Returns | 16,160 | |
| Suspense A/c | 16,160 | |
| Suspense A/c | 10,000 | |
| Sales | 10,000 | |
| Bank | 1,500 | |
| Accumulated Depreciation | 5,800 | |
| Non-current Asset | 7,000 | |
| Profit on Disposal | 300 | |
| Suspense A/c | 3,210 | |
| Receivables | 3,210 | |
| Receivables | 1,560 | |
| Irrecoverable Debt Expense | 1,560 | |
| Allowance for Receivables | 1,744 | |
| Irrecoverable Debt Expense | 1,744 | |
| Inventory | 550 | |
| Suspense A/c | 550 |
Working 1:
Receivables A/c
| Dr. | GH₵ | Cr. | GH₵ |
|---|---|---|---|
| Balance b/d | 23,390 | Allowance for Receivables A/c | |
| Suspense A/c [see entry iv(a)] | 3,210 | Balance c/d | |
| 26,600 | 26,600 | ||
| Balance b/d | 26,600 |
Allowance for Receivables A/c
| Dr. | GH₵ | Cr. | GH₵ |
|---|---|---|---|
| Balance b/d | 2,320 | ||
| Irrecoverable Debt Expense [(26,600 – 1,560) × 10% – 2,320] | 234 | ||
| Balance c/d | 2,554 | ||
| 2,554 | 2,554 | ||
| Balance b/d | 2,554 |
(B)
An accountant who does not comply with the ethical principle of professional competence may not have kept their knowledge of IFRS Accounting Standards up to date and, as a result, prepares non-compliant financial statements that are unintentionally misleading to users.
An accountant who does not adhere to the ethical principle of objectivity may prioritize personal gain over professional behavior and, as a result, manipulate financial information, making it less useful to users.
Ethical behavior therefore underpins the public’s trust in accountants and is crucial for individuals and entities to rely on the information produced by them.
- Topic: Correction of Errors
- Uploader: Samuel Duah