Correction of Errors (With Answers) : Step 1 Step 2

Advanced-Level
Correction of errors (With answers)

1
Errors NOT affecting trial
balance agreement (six)
Errors of commission
Errors of principle
Errors of original entry
Errors of omission
Compensating errors
Complete reversal of entries
Errors
Correction by DOUBLE
ENT!
Step 1 Show corrections
using "o#rnal entries
Step 2 Post journal
entries to rele$ant
le%ger acco#nts
Errors &''ECT(N) trial
balance agreement
The following are
E*&+,LE- ONL!.
Incorrect calculations in any
account
a!ing an entry on only one
account" i#e# a de$it $ut no
credit %& a credit $ut no
de$it#
Entering a different amount
on the de$it side
from the amount on the
credit side" or vice versa#
' many other errors/
-#s0ense acco#nt
Enter the %ifference in the
trial $alance in the s#s0ense
acco#nt
Correction by DOUBLE
ENT!
Step 1 Show corrections
using "o#rnal entries
Step 2 Post journal
entries to s#s0ense
acco#nt &ND1O
rele$ant le%ger
acco#nts
Advanced-Level
Errors Not &ffecting Trial balance &greement
Procedure of Correction of Errors:

WHAT IS RIGHT?
Identify the correct
double entries in
correct amounts

WHAT HAS BEEN WRONG?
Identify the entries and
amounts which are wrongly
recorded.
ADJUSTMENTS
Make the
appropriate
adjustments.

1# Errors of omission ( where a transaction is completely omitted from the $oo!s#
E)ample one * Electricity accrued and rent prepaid amounted to +1,, and +-,, respectively
were $oth omitted# In addition" stationery stoc! of +./ was found to $e unrecorded in the final
accounts#
0ate Particular 0r Cr
Profit and Loss account ( electricity 1,,
Accruals 1,,
Prepayments -,,
Profit and Loss account ( rent -,,
Stationery stoc! ./
Profit and Loss account ( stationery ./
E)ample 1wo * 1rading stoc! of +1,,, was omitted in the stoc! ta!e#
Stoc! 1,,,
1rading account ( closing stoc! 1,,,
-# Errors of commission- a wrong account of the same class has $een de$ited or credited although
the amount is correct#
E)ample * A che2ue for +3, received from 4# 4ordon had $een posted to the account of I# 4ordon# It
was also found that the che2ue related to a de$it previously written off as irrecovera$le#
Step 15 Identify the &ight Entries
6an!
4# 4ordon
4# 4ordon 3, 6ad de$ts &ecovered 3, 6an! 3,
6ad 0e$ts &ecovered
4# 4ordon 3,
Step -5 Identify the 7rong Entries
-
Advanced-Level
6an!
I# 4ordon
I# 4ordon 3, 6an! 3,
Step 85 a!e Appropriate Adjustments
I# 4ordon ( de$tors 3,
4# 4ordon ( de$tors 3,
4# 4ordon - de$tors 3,
6ad 0e$ts &ecovered 3,
8# Errors of principle ( where an item with correct amount has $een entered in the wrong class of
account#
E)ample one * A new van was purchased at +/3,, for resale and this transaction had $een
entered in the 9i)ed Assets &egister# 1he company:s policy was to depreciate at 1,; on cost of
the motor vehicles held at the year end#
Purchases
6an!
Purchases /"3,, Purchases /"3,,
<ans
6an!
6an! /"3,, <ans /"3,,
Purchases /"3,,
<ans /"3,,
Provision for depreciation * vans =overstated> /3,
Profit and Loss Account - depreciation /3,
3# Errors of original entry ( where the original figure is wrong yet the accounts involved in the
dou$le entry are correct#
8
Advanced-Level
E)ample one * A credit note received of +1-1 was wrongly treated as +-1-#
Creditors
Purchases &eturns
P# &eturns 1-1 Creditors 1-1
Creditors
Purchases &eturns
P# &eturns -1- Creditors -1-
Purchases &eturns =-1--1-1> .1
Creditors .1
E)ample two * &epairs in the sum of +- ?/, made to a flat occupied $y the owner had $een
charged to the firm@s maintenance e)penses#
0rawings
Cash
Cash -"?/, 0rawings -"?/,
aintenance e)penses
Cash
&epairs -"?/, aintenance -"?/,
0rawings -"?/,
aintenance e)pense -"?/,
/# Complete reversal of entries ( where the correct accounts are used $ut each item is shown on
the wrong side of the account#
E)ample one * A refund of +8,, to a de$tor was recorded as a receipt from him#
3
Advanced-Level
0e$tors
6an!
6an! 8,, 0e$tors 8,,
Step 15 Identify the 7rong Entries
0e$tors
6an!
6an! 8,, 0e$tors 8,,
0e$tors A,,
6an! A,,
E)ample 1wo * A rent prepaid of +1,, was erroneously treated as an accrual and entered as
such#
&ent
6al $Bd 1,,
&ent
6al $Bd 1,,
Accruals 1,,
Prepayments 1,,
&ent -,,
A# Compensating errors ( where errors cancel out each other so that the totals of the trial $alance
still agree#
E)ample * 0iscounts allowed has $een under-totaled $y +8/ and an item in the sales returns
day $oo! of the same amount has not $een posted to the relevant account of the customer#
/
Advanced-Level
0iscount allowed
0e$tors
C8/ C8/
0iscount allowed
0e$tors
-8/ Sales &eturns -8/
0iscounts allowed 8/
0e$tors 8/
Errors &ffecting Trial balance &greement
1# Errors in posting
%mission of posting * A payment of che2ue of +13A for stationery had not $een posted to the
appropriate nominal account#
Stationery 13A
Suspense 13A
%verstate =Dnderstate> the amount of posting * A purchases of +-,, from r# Lam was posted
from purchases day $oo! as +-,,,#
r# Lam - creditors 1"E,,
Suspense 1"E,,
Post to the wrong side of the correct account * A return of +8,,, from r# Au posted from
sales returns day $oo! to the wrong side of his account#
Suspense A",,,
r# Au ( de$tors A",,,
Post to the wrong side of a wrong account * 1he total" +AA," of the discount column on the
A
Advanced-Level
credit side of the three-column cash $oo! was posted to the discount allowed account#
Suspense 1"8-,
0iscounts allowed AA,
0iscounts received AA,
-# Errors in casting
%vercast =Dndercast> an account * the de$it side of a creditor account was overcast $y +A,#
Suspense A,
Creditors A,
%vercast =Dndercast> a day $oo! * 1he purchases returns day $oo! was overcast $y +-,,#
Purchases returns -,,
Suspense -,,
%vercast =Dndercast> the ending stoc! figure * 1he wor! sheet for the stoc! ta!e at year end
was overcast $y +-,,#
1rading * closing stoc! -,,
Stoc! -,,
8# Errors in the carried downB$rought down of the prepayments and accruals
E)ample one * 1he $alance $rought down at the $eginning of the accounting year for prepaid
insurance of +-,, was omitted#
Insurance -,,
Suspense -,,
7hat if the a$ove error was discovered at the year end of last year instead of the end of current
yearF
Prepayments - insurance -,,
Suspense -,,
?
Advanced-Level
E)ample two * 1he $alance $rought down at the $eginning of the accounting year for accrued rent
of +/,, was erroneously $rought down as a prepayment of rent# =Go error in the $alance carried
down at year end of last year#>
Suspense =/,,)-> 1",,,
&ent 1",,,
7hat if the a$ove error was discovered at the year end of last year instead of the end of current
yearF
Suspense 1",,,
Prepayments ( rent /,,
Accruals ( rent /,,
3# Errors in listing
%mission of a $alance from a listing * A de$it $alance of +1E/ has $een omitted from the
schedule of de$tors" the total of which has $een entered in the trial $alance#
0e$tors ( 1rial 6alance 1E/
Suspense 1E/
Place a $alance on the wrong side of the trial $alance * A $an! overdraft of +1,,, was listed
as a de$it $alance in the trial $alance#
Suspense -,,,
6an! overdraft ( 1rial 6alance -,,,
E
Advanced-Level
Simple e)ample
1he following is the 1rial $alance of Single Ltd as at 81 arch -,,15
Single Ltd
1rial $alance as at 81 arch -,,1
0r# Cr#
+ +
Salaries and wages 8 1AE
9i)tures 1, ,,,
6an! A ?.,
Purchases A- 3,,
0iscount allowed 8,/
Heneral e)penses /./
Stoc! 1- 3.,
0e$tors E 1-,
0rawings 3 /-,
Sales E? ,/,
0iscount received 31,
Creditors / ,3/
Capital 1? ,1?
1,E 8EE 1,. /--
As the de$it side does not agree with the credit side" we need to open a suspense account to ma!e it
$alance#
Single Ltd
1rial $alance as at 81 arch -,,1
0r# Cr#
+ +
Salaries and wages 8 1AE
9i)tures 1, ,,,
6an! A ?.,
Purchases A- 3,,
0iscount allowed 8,/
Heneral e)penses /./
Stoc! 1- 3.,
0e$tors E 1-,
0rawings 3 /-,
Sales E? ,/,
Creditors / ,3/
Capital 1? ,1?
.
Advanced-Level
Suspense =$#f#> 1 183
1,. /-- 1,. /--
Suspense account
0ifference per trial $alance 1 183
After a detailed investigation" the accountant of Single Ltd discovered the following errors5
=a> Sales journal overcast $y +8/,#
=$> 0iscounts allowed undercast $y +1,,#
=c> 9i)tures" $ought for +E/," have $een entered in the cash $oo! $ut not the fi)tures account#
=d> Credit purchase of +1AA was entered in the purchases journal only" $ut not in the creditors
account#
=e> Che2ue payment to a creditor of +3., had $een de$ited to the drawings account in error#
Suspense Account
6alance $Bd 1"183 0iscounts allowed 1,,
Creditors 1AA Sales 8/,
I 9i)tures IE/,
18,, 1"8,,
9ull e)ample
After the e)traction of the $alances from the $oo!s of 6land" the totals of the trial $alance
failed to agree# 1he following items have su$se2uently $een discovered#
1# 1he total" +1-,," of the discounts received column in the cash $oo! had $een posted to de$it
side of the relevant account#
-# An old van with a net $oo! value of +E1.- was sold at +/,,,# 1he van was purchased si)
years ago and the depreciation had $een provided at A,; p#a# $y the reducing $alance method#
1he sale proceed was entered as cash sales#
8# 1he payment of +-A/ for rent had $een entered correctly in the cash $oo! $ut had $een
credited to the rent e)penses account in the nominal ledger as +-/A#
3# Invoices for +8,,, for advertising e)penses had $een included in creditors when in fact they
were related to the following period#
/# +18/, worth of goods" sold to a customer $ut not yet delivered had $een included in the ending
stoc!# %n the other hand" goods costing +-,,, were sent to an agent on a Jsale or return: $asis#
1hese goods had $een invoiced at a gross profit margin of -,; and were included in the sales
of the year irrespective of the fact that only +3,, of these goods at cost had $een sold to date#
1,
Advanced-Level
A# In arriving at the de$tors figure in the trial $alance an individual de$tor:s $alance of +1?E. was
incorrectly ta!en as +?1E.#
?# Go entry had $een made in the accounts to record the receipts of a che2ue for +A, from 7hite"
a supplier# 1he che2ue was a refund relating to previous overpayment for goods supplied#
E# 1he amount +-,, had $een paid on office stationery" $ut only stationery to the value of +1/,
had $een used# It was discovered su$se2uently that +A, purchases of stationery was not yet
paid and the unused stationery stoc! was omitted from the $oo!s#
.# A sales invoice of +.AA was incorrectly entered in the sales day $oo! as +..A and su$se2uently
posted to the respective sales ledger account as +.A.#
1,# An amount of +EA received from A# 6lunt" a de$tor" in settlement of his account had $een
treated as a cash sale#
Kou are re2uired to5
=a> Prepare the journal entries to correct the a$ove errors
=$> Prepare a statement to adjust the drafted profit figure of +11,,,#
=c> Prepare the suspense account to enter the corrections so as to restore the agreement of the trial
$alance#
1 Suspense account -"3,,
0iscounts received account =+1"-,,)-> -"3,,
- Sales /",,,
0isposal account /",,,
0isposal account LE"1.-B=1-A,;>
A
M -",,,",,,
<an -",,,",,,
Provision for depreciation =-",,,",,,-E1.-> 1"..1"E,E
0isposal account 1"..1"E,E
Profit and Loss account * Loss on disposal 8"1.-
0isposal account 8"1.-
8 &ent /-1
Suspense account /-1
11
Advanced-Level
3 Creditors 8",,,
Advertising 8",,,
/ 1rading aBc 1"8/,
Stoc! 1"8/,
Sales =-",,,-3,,>BE,; -",,,
0e$tors -",,,
Stoc! 1"A,,
1rading ( closing stoc! 1"A,,
A Suspense account /3,,
0e$tors =1rial 6alance> /3,,
? 6an! A,
Creditors ( 7hite A,
E Stationery stoc! 11,
Stationery 11,
Stationery A,
Accruals A,
. Sales account =..A-.A.> 8,
Suspense -?
0e$tors 8
1, Sales EA
0e$tors * A# 6lunt EA
Statement for revised net profit
Get Profit $efore adjustment 11",,,
Add5 0iscounts received understated =1> -"3,,
Advertising overcharged =3> 8",,,
Stoc! held $y an agent on a Jsale or return: $asis =/> 1"A,,
Stationery overcharged =E> 11, ?"11,
1E"11,
1-
Advanced-Level
Less5 Cash sales overstated =-> /",,,
Loss on disposal omitted =-> 8"1.-
&ent e)penses understated =8> =-A/C-/A> /-1
Stoc! sold $ut not yet delivered =/> 1"8/,
Sales overstated =/> -",,,
Stationery undercharged =E> A,
Sales overstated =.> 8,
Cash sales overstated =1,> EA 1-"-8.
Get Profit after adjustment /"E?1
Suspense Account
+ +
0iscounts received -"3,, 6alance $Bd =$#f#> ?"-/-
0e$tors /"3,, &ent /-1
0e$tors 8 Sales 8,
?"E,8 ?"E,8
E)ercise one
6alance Sheet of 4 Craig as a 81 0ecem$er 1.)1
9i)tures and fitting 1-"/,, Capital 1,",,,
Stoc! /",,, Get profit for year E"A/,
0e$tors -"1,, 1E"A/,
Cash /, 0rawings 8".8,
13"?-,
Creditors 3"8/,
Suspense account /E,
1."A/, 1."A/,
7hen the a$ove $alance sheet was prepared there was still a difference in the trial $alance" and
it was necessary to open a suspense account for the amount show#
Su$se2uently the following errors have $een discovered5
=a> 1he $alance of +13, on E 4ac!son:s account in the sales ledger $ad had $een $rought
forward as +13#
=$> 1he sales day $oo! had $een undercast $y +8EA#
=c> A new cash register costing +81, had $een de$ited to purchases account instead of fi)tures
and fittings#
=d> 0epreciation of e2uipment had $een entered in the profit and loss account as +1"?-3 instead
of +1"-?3#
=e> 0iscounts allowed of +A/ had $een posted to the credit of discount received account#
Kou are re2uired
18
Advanced-Level
=i> 1o provide journal entries necessary to correct the errorsN
=ii> 1o produce a corrected $alance sheet showing the amended $alance on the suspense
account#
=i>
a E 4ac!son 1-A
Suspense 1-A
$ Suspense 8EA
Sales =Profit and Loss> 8EA
c 9i)ture and fitting 81,
Purchases 81,
d Suspense 3/,
Profit and Loss * depreciation 3/,
e 0iscounts received A/
0iscounts allowed A/
Suspense 18,
=ii>
Suspense Account
Sales =Profit and Loss> 8EA 6alance $Bd /E,
Profit and Loss 3/, E 4ac!son 1-A
0iscounts allowed A/
0iscounts received A/
E8A E8A
6alance Sheet of 4 Craig as a 81 0ecem$er 1.)1
9i)ed Assets Capital 1,",,,
9i)tures and fitting =1-/,, C 81,> 1-"E1, Add5 Get profit for year ."AAA
=EA/, C 8EA C 81, (18, C 3/,> 1."AAA
Current Assets Less5 0rawings 8".8,
Stoc! /",,, 1/"?8A
0e$tors =-1,, C 1-A> -"--A Current Lia$ilities
Cash /, Creditors 3"8/,
-,",EA -,",EA
13
Advanced-Level
Statement for revised net profit
Get Profit $efore adjustment E"A/,
Add5 Sales undercast 8EA
Purchases overcast 81,
0epreciation overcast 3/, 1"13A
."?.A
Less5 0iscounts allowed undercast A/
0iscounts received overcast A/ 18,
Get Profit after adjustment ."AAA
E)ercise 1wo
=a> An ine)perienced $oo!-!eeper has drawn up a trial $alance for the year ended 8, 4une
1.O?5
0r Cr
+ +
Provision for dou$tful de$ts -,,
6an! overdraft 1"A/3
Capital 3"/.1
Creditors 1"A8?
0e$tors -".E8
0iscount received -/-
0iscount allowed ?88
0rawings 1"-,,
%ffice furniture -"1//
Heneral e)penses E-.
Purchases 1,".-8
&eturns inwards 88,
&ent and rates 813
Salaries -"/-,
Sales 1A"EE-
Stoc! -"31E
Provision for depreciation of furniture 8A3 II II
-3".8E -/",,-
&e2uired5
=a> 0raw up a Jcorrected: trial $alance" de$iting or crediting any residual error to a suspense
account#
=$> 9urther investigation of the suspense account" ascertained in =a> a$ove" reveals the following
errors5
1/
Advanced-Level
=i> Hoods $ought from 4#4ones amounting to +18 had $een posted to his account as +88#
=ii> 9urniture which had cost +1?8 had $een de$ited to the general e)pense account#
=iii> An invoice from Suppliers Ltd for +8?, had $een omitted from the purchase account" $ut
credited to Suppliers Ltd:s account#
=iv> Sales on credit to A# Pope Ltd for +3/, had $een posted to the sales account" $ut not to the
de$tors ledger#
=v> 1he $alance on the capital account had $een incorrectly $rought forward in the ledger" and
should have $een +3"-.1#
=vi> An amount of +EA received from A# 6lunt" a de$tor" in settlement of his account had $een
treated as a cash sale#
=vii> 0iscount allowed has $een undertotalled $y +8/#
&e2uired5
Prepare journal entries correcting each of the a$ove errors and write up the suspense account#
1rial 6alance for the year ended 8,-A-1.O?
0r Cr
Provision for dou$tful de$ts -,,
6an! %verdraft 1"A/3
Capital 3"/.1
Creditors 1"A8?
0e$tors -".E8
0iscounts received -/-
0iscounts allowed ?88
0rawings 1"-,,
%ffice furniture -"1//
Provision for depreciation * 9urniture 8A3
Heneral e)penses E-.
Purchases 1,".-8
&eturns inwards 88,
&ent and &ates 813
Salaries -"/-,
Sales 1A"EE-
Stoc! -"31E
Suspense 1"1?/
-/"/E, -/"/E,
=$>
1A
Advanced-Level
=i> 4 4one =creditors> -,
Suspense -,
1o correct the error of overstate the amount of posting
=ii> 9urniture 1?8
Heneral e)penses 1?8
1o correct the error of principle
=iii> Purchases 8?,
Suspense 8?,
1o correct the omission of posting
=iv> A Pope Ltd =de$tors> 3/,
Suspense 3/,
1o correct the omission of posting
=v> Capital =3/.1-3-.1> 8,,
Suspense 8,,
1o correct the $rought down $alance of capital
=vi> Sales EA
A 6lunt =de$tors> EA
=vii> 0iscounts allowed 8/
Suspense 8/
1o correct the error of undercasting
=c>
Suspense Acocunt
1.-? + 1.-?
8,BA 6alance $Bd 1"1?/ 8,BA 4 4ones -,
Purchases 8?,
A Pope Ltd 3/,
Capital 8,,
0iscounts Allowed 8/
1"1?/ 1"1?/
E)ercise 1hree
After completing a draft profit and loss account for the year ended 8, April 1.O, of A#6#C#
1?
Advanced-Level
Limited the following $alances remained and a suspense account entry was re2uired for the
difference which had arisen5
+ +
9i)ed assets5 at cost
Provision for depreciation
%rdinary share capital
&etained earnings
Stoc! in trade" at cost
Sales ledger control account
Purchases ledger control account
6alance at $an!
0ifference on $alances suspense account
A,",,,
13",,,
."A,,
1"A3,
81",,,
8/",,,
1-",,,
A"/,,
?3,
E/"-3, E/#-3,
After investigation the following discoveries were made5
=a> A rent payment of +8/, in arch 1.O, had $een de$ited in the sales ledger control account#
=$> Although instructed to do so" the accounts cler! had not set a de$t due from 6# 6ell of +1"/A,
in the sales ledger control account against an amount due to 6# 6ell in the purchases ledger
control account#
=c> 0iscounts allowed of +/,, during the year ended 8, April 1.O, had not $een recorded in the
company:s accounts#
=d> Go entry had $een made for refund of +-"A-, made $y che2ue to L# Hreen in arch" 1.O," in
respect of defective goods returned to the company# Gote5 1he correct entries had $een made
previously for the return of the goods to A#6#C# Limited#
=e> 1he purchases day $oo! for 9e$ruary 1.O, had $een undercast $y +8,,#
=f> A payment of +1",,, to Q# 6loom in 4anuary 1.O, for cash purchases had $een de$ited in the
purchases ledger control account# Gote5 1he company does not maintain a credit account with
Q# 6loomR
=g> Go entries had $een made in the company:s $oo!s for cash sales of +-"3/, on 8, April 1.O,
and $an!ed on that date#
=h> Go entries had $een made in the company:s $oo!s for $an! charges of +.1, de$ited in the
company:s $an! account in 0ecem$er 1.O.#
=i> 1he company:s cash $oo! =$an! de$it column> had $een overcast $y +1".,, in arch 1.O,#
=j> A che2ue payment of +E"A3, for new fi)tures and fittings in April 1.O, had not $een recorded
in the company:s $oo!s#
=!> A payment $y che2ue of +1"3A, in 4une 1.O. for stationery had not $een posted to the
appropriate nominal account#
&e2uired5
=a> 1he journal entries for items =a> ( =!> a$ove# Gote5 Garratives are re2uired#
=$> 1he corrected list of $alances at 8, April 1.O,#
1E
Advanced-Level
=a> Profit and Loss * &ent 8/,
Sales Ledger Control 8/,
=$> Purchases Ledger Control 1"/A,
Sales Ledger Control 1"/A,
1o set-off the amount due from 6# 6ell
=c> Profit and Loss * 0iscounts allowed /,,
Sales Ledger Control /,,
1o correct the error of omission
=d> Sales Ledger Control -"A-,
6an! -"A-,
=e> Profit and Loss * Purchases 8,,
Purchases Ledger Control 8,,
1o correct the error of under casting
=f> Profit and Loss * Purchases 1",,,
Purchases Ledger Control 1",,,
=g> 6an! -"3/,
Profit and Loss * Sales -"3/,
=h> Profit and Loss * 6an! Charges .1,
6an! .1,
=i> Suspense 1".,,
6an! 1".,,
1o correct the error of over casting
=j> 9i)ture and fitting E"A3,
6an! E"A3,
1.
Advanced-Level
1o correct the errors of omission
=!> Profit and Loss * Stationery 1"3A,
Suspense 1"3A,
1o correct the error of omission of posting
List of $alance as at 8,-3-1.O,
9i)ed Assets5 at cost AE"A3,
9i)ed Assets5 provision for depreciation 81",,,
%rdinary share capital 8/",,,
&etained earnings .".8,
Stoc! in trade" at cost 13",,,
Sales ledger control ."E1,
Purchases ledger control A"-3,
6alance at $an! =%B0> .".E,
Suspense 8,,
.-"3/, .-"3/,
E)ercise 9our
Sharples and Syvret are partners in a $usiness producing ornaments in pottery# Syvret was in
charge of sales and it was agreed that she $e paid a commission of -; on sales $efore distri$ution
of profits# 1he profit sharing ration is -51#
Sto!es" a partly 2ualified accountant" !ept the $oo!s# 1he following errors had $een made and
a suspense account had $een opened to effect a $alance on completing the draft accounts5
1# A new van was purchased for +/"3,, and this amount had $een entered in the Purchases
0ay 6oo!" and charged to the Purchases Account#
-# 1he new van replaced the firm:s two other vehicles costing +-"?,, each which had $een
depreciated $y 1,; per annum on a reducing $alance for three years and two years
respectively" and which were sold for +8"A,, in total" che2ues for which amount had $een
posted to the sales account# Go other entries were made in the account#
8# 0epreciation of furniture and fittings of +1"33, had $een overloo!ed#
3# 0iscount allowed of +-3 had $een correctly entered in personal accounts $ut had $een
treated in the general ledger as discount received#
/# Hoods returned inwards" value +8A, had $een entered in the general ledger correctly $ut
had not $een posted to the de$tor:s personal account# Control accounts are not
maintained#
A# A che2ue for +3, received from 4#Hillies had $een posted to the account of I#Hiles# 1he
che2ue related to a de$t previously written off as irrecovera$le#
-,
Advanced-Level
?# Stoc! costing +-,, was sent from the shop in 6ournemouth to Syvret:s mother in 4ersey
on sale or return# %nly +3, of this stoc! at cost had $een sold to date#
1he gross profit is -,; of sales#
&e2uired5
=a> Prepare journal entries necessary to correct the accounts#
=$> Produce the adjusted suspense account#
=c> Prepare a statement showing the adjustments to net profit and to partners: shares of profit#
=a>
1 otor van /"3,,
Profit and Loss * Purchases /"3,,
Profit and Loss * 0epreciation /3,
Provision for depreciation ( motor van /3,
- Profit and Loss * Sales 8"A,,
Provision for depreciation 1"-3/
Profit and Loss * Loss on disposal ///
otor van /"3,,
1o correct the error of principle and omission
8 Profit and Loss * depreciation 1"33,
Provision for depreciation 1"33,
3 Profit and Loss * 0iscounts Allowed -3
Profit and Loss * 0iscounts &eceived -3
Suspense 3E
1o correct the error of the wrong side of a wrong account
/ Suspense 8A,
0e$tors 8A,
1o correct the error of omission of positng
-1
Advanced-Level
A I Hiles - de$tors 3,
4 Hillies - de$tors 3,
1o correct the error of commission
4 Hillies - de$tors 3,
Profit and Loss * 6ad 0e$ts &ecovered 3,
1o enter the $ad de$ts recovered#
? Stoc! 1A,
1rading * Closing stoc! 1A,
Profit and Loss * Sales -,,
0e$tors -,,
=$>
Suspense Account
0e$tors 8A, 6alance $Bd =6alancing fig#> 81-
0iscounts allowed -3
0iscount received -3
8A, 8A,
=c>
Statement showing the adjustment to net profit
Items added to the net profit + +
Purchases overstated /"3,,
6ad de$ts recovered 3,
Closing stoc! understated 1A, /"A,,
Less5 Items deducted from net profit
Sales overstated 8"A,,
Loss on disposal ///
0iscounts allowed understated -3
0iscounts received overstated -3
0epreciation of furniture and fitting understated 1"33,
0epreciation of motor van understated /3,
Sales overstated -,, A"8E8
--
Advanced-Level
1he decrease in net profit =?E8>
Commission to partner =8"A,, C -,,> ) -; S ?A
Adjustment to the share of profit (+?E8 C +?A S -+?,?
0ecrease in the sharing of profit
Sharples5 ?,? ) -B8 S 3?1#88
Syvret5 ?,? ) 1B8 S -8/#A?
E)ercise 9ive
7yre and Polmes
6alance Sheets as at 81 0ecem$er 1.-1
+ + + + +
9i)ed assets =at cost less depreciation> Capital accounts
Premises A",,, 7yre ?",,,
<ehicles 1",., Polmes ?",,, 13",,,
E2uipment and tools -"3E,
."/?,
Current assets Current accounts
Stoc! 3"/-A 7yre =credit> A31
0e$otrs
Less5 provision
for $ad de$ts
-"88.
-88
-"1,A
Polmes =de$it> 38- -,.
Current lia$ilities
Prepayments 133 Creditors -"/,E
6an! and cash 1".3, E"?1A Accruals II1-E -"A8A
1E"-EA 1A"E3/
1he $alance sheet of the partnership of 7yre and Polme" electrical contractors" was drawn up
as shown a$ove# 1he totals failed to agree and the difference was put into suspense account pending
investigation# 1he investigation su$se2uently disclosed that5
=i> 1he purchase returns day$oo! had $een correctly entered and totaled at +A1A $ut had
not $een posted to the ledgers#
=ii> 0iscounts received" +18-" had $een de$ited to discounts allowed#
=iii> 1he sales account had $een under-added $y +1",,,#
=iv> A credit sale of +13? had $een de$ited to a customer:s account as +1?3#
=v> A vehicle $ought originally for +?,, four years ago and depreciated at -, per cent $y
the straight line method on an assumed residual value of +1,," had $een sold as surplus
to re2uirements for +1/, $ut no entries" other than in the $an! account" had $een
-8
Advanced-Level
passed through the $oo!s#
=vi> An accrual of +/A for telephone charges had $een completely omitted#
=vii> 1he partners: current accounts had $een credited with interest on capital at 1, per cent
instead of at the agreed rate of five per cent#
=viii> A $ad de$t of +1/- had not $een written off and provision for had de$ts should have
$een maintained at 1, per cent of de$tors#
=i)> 7yre:s current account had $een credited with a partnership salary of +E,, which
should have $een credited to Polmes: current account#
=)> %n one stoc! sheet at 81 0ecem$er 1.-1 a su$-total of +-".E8 had $een carried forward
as +-".8E and another sheet had $een overcast $y +1,,#
=)i> 1ools $ought for +1-, had $een inadvertently de$ited to purchases#
=)ii> Polmes had withdrawn" for personal use" goods to the value of +1.A# Go entries had
$een made in the $oo!s#
1he partners shared profits and losses as follows5 7yre 8B/" Polmes -B/#
&e2uired5 =All wor!ings must $e shown#>
=a> Prepare a statement of adjustments to net profit for the year#
=$> &edraft the corrected $alance sheet as at 81 0ecem$er 1.-1#
7or!ings5
=i> Creditors A1A
Purchases returns A1A
=ii> Suspense -A3
0iscounts allowed 18-
0iscounts received 18-
=iii> Suspense 1",,,
1rading * sales 1",,,
=iv> Suspense -?
0e$tors -?
=v> Suspense 1/,
Provision for depreciation =?,,)-,;)3yr#> /A,
Profit and Loss ( profit on disposal 1,
<ehicles ?,,
=vi> 1elephone /A
-3
Advanced-Level
Accruals ( telephone /A
=vii> Current ( Polmes ?,
Current ( 7yre ?,
%&
Current - 7yre 8/,
Current ( Polmes 8/,
Current - 7yre 3-,
Current ( Polmes -E,
=viii> 6ad de$ts 1/-
0e$tors 1/-
Provision for $ad de$ts -88-=-"88.-1/---?>)1,; 1?
Profit and Loss 1?
=i)> Current ( 7yre E,,
Current ( Polmes E,,
=)> 1rading * Closing stoc! //
Stoc! //
=)i> 1ools 1-,
Purchases 1-,
=)ii> 0rawing * Polmes 1.A
Purchases 1.A
=a>
Statement of adjustments to the net profit for the year ended 81-1--1.-1
Items added to net profit + +
0iscounts received understated 18-
0iscounts allowed overstated 18-
Sales understated 1",,,
Profit on disposal 1,
0ecrease in provision for $ad de$ts 1?
Purchases overstated 1-,
Purchases overstated 1.A
Purchases returns understated A1A -"--8
-/
Advanced-Level
Less5 Items deducted from net profit
Electricity understated /A
Closing stoc! overstated //
6ad de$ts understated 1/- -A8
Increase in net profit 1".A,
Share of net profit5 7yre S +1".A, ) 8B/
S +1"1?A
Polmes S +1".A, ) -B/
S +?E3
=$>
6alance Sheet as at 81-1--1.-1
9i)ed Assets + + Capital + +
Premises A",,, 7yre ?",,,
<ehicles =1",., ( ?,, C /A,> ./, Polmes ?",,, 13",,,
E2uipment and tools =-"3E,C1-,> -"A,, ."//,
Current account
Current Assets 7yre =A31-E,,C?,C1"1?A> 1",E?
Stoc! =3"/-A-//> 3"3?1 Polmes EEA 1".?8
0e$tors =-"88.-1/---?> -"1A, =-38--?,CE,,-1.AC?E3>
Less5 Provision for $ad de$ts =-1A>
Prepayments 133 Current Lia$ilities
6an! T Cash 1".3, E"3.. Creditors =-"/,E-A1A> 1"E.-
Accruals =1-EC/A> 1E3 -",?A
1E",3. 1E",3.
E)ercise Si)
At the end of the financial year the totals of the trial $alance of Chilford failed to agree and the
difference" +-18" was credited to a suspense account pending investigation#
Su$se2uently" the following errors were discovered5
1# &ates" +-3," paid in advance at the end of the previous year had not $een $rought down
on the rates account as an opening $alance#
-# A new machine =cost +11,,> ac2uired for use in the $usiness had $een de$ited to
purchases#
8# 1he sales day$oo! had $een under-added $y +/,,#
3# Surplus items of machinery =held as fi)ed assets> had $een sold at their $oo! value of
+3,, on credit and this transaction had $een recorded as a normal sale in the sales $oo!#
/# Hoods" $ought from a supplier for +1/" had $een credited to his account as +/1#
-A
Advanced-Level
A# 0iscount allowed" +." had $een correctly recorded in the cash $oo! $ut had not $een
posted to the customer:s account#
?# An amount of +A," owed $y a customer" had $een missed off he schedule of de$tors
$alances used as the de$tors figure in the trial $alance#
E# Hoods returned $y a credit customer had $een correctly recorded in the sales return
day$oo! as +-," $ut had $een de$ited to that customer:s account#
1he trial $alance" $efore the errors were corrected" was5
0r Cr
0iscounts allowed 8-,
Purchases 31 ?,,
Purchases returns A,,
Sales ?- 8,,
Sales returns 1 /,,
Carriage outwards 3 18,
7ages and salaries -8 /,,
Stoc! =opening> 1. -,,
Peating and lighting ? E,,
&ent" rates and insurance / A,,
Heneral e)penses A 1,,
6uildings 1, ,,,
achinery . 88,
0e$tors E ,/.
Creditors 3 .?-
6an! and cash / A?A
Capital =opening> A3 3-,
13- .1/ 13- ?,-
Suspense =difference> -18
13- .1/ 13- .1/
&e2uired5
=a> &ewrite the trial $alance correcting the errors#
=$> State $y how much the profit or loss for the period was affected $y the errors#
=c> Post the appropriate correcting entries in the suspense account in order to eliminate the
$alance#
7or!ings =the journal entries to correct the errors> 5
1 &ates -3,
Suspense -3,
-?
Advanced-Level
- achinery 1"1,,
Purchases 1"1,,
8 Suspense /,,
Sales /,,
3 Sales 3,,
achinery 3,,
/ Creditors =/1-1/> 8A
Suspense 8A
A Suspense .
0e$tors .
? 0e$tors ( 1rial 6alance A,
Suspense A,
E Suspense 3,
0e$tors 3,
=a>
1rial 6alance as at the end of the financial year
0r Cr
0iscounts allowed 8-,
0iscounts received 31,
Purchases 3,"A,,
Purchases returns A,,
Sales ?-"3,,
Sales returns 1"/,,
Carriage outwards 3"18,
7ages T salaries -8"/,,
%pening stoc! 1."-,,
Peating T lighting ?"E,,
&ent" rates and insurance /"E3,
Heneral e)penses A"1,,
-E
Advanced-Level
6uildings 1,",,,
achinery 1,",8,
0e$tors E",?,
Creditors 3".8A
6an! T cash /"A?A
Capital =opening> IIIIIII IIA3"3-,
13-"?AA 13-"?AA
=$>
Effects on the net profit
Items added to the net profit + +
Purchases overstated 1"1,,
Sales understated /,, 1"A,,
Less5 Items deducted from the net profit
&ates understated -3,
Sales overstated 3,, A3,
Get increase in net profit .A,
=c>
Suspense Account
+ +
Sales /,, 6alance $Bd -18
0e$tor ( discounts allowed . &ates -3,
0e$tor ( discounts received 3, Creditors 8A
0e$tor A,
/3. /3.
E)ercise Seven
1he first draft of the final account of 7ilmot for the year ended 81 0ecem$er 1.-1 disclosed
that capital employed was +-?",/8 and net profit for the year was +A"E?3# 1he $oo!s of account
had" however" $een written up $y 7ilmot:s daughter" a student" and contained a num$er of errors#
After a lengthy chec! of all the entries" the following errors were identified5
=i> Sales on credit had $een over-added $y +?8, in the sales day$oo!#
=ii> A credit purchase of +3/, had $een de$ited to a supplier:s account as +/3,#
=iii> Some office furniture $ought five years age for +8,, and depreciated $y +-?, had $een
-.
Advanced-Level
sold for +1,, $ut no entries had $een made e)cept to record the receipt of the proceeds
in the $an! account#
=iv> Gew office e2uipment" +/,," $ought on 1 4anuary 1.-1 had $een de$ited to the
purchases account# 0epreciation should have $een provided at -, per cent using the
straight line method#
=v> Go entry had $een made for goods withdrawn $y 7ilmot for personal consumption"
+-1,#
=vi> 0iscounts allowed +., had $een credited to discounts received#
=vii> An accrual for power" +-8" and an insurance prepayment" +.," had $oth $een
completely omitted#
&e2uired5
=a> A statement amending the net profit and capital employed figures for each of the items =i> to
=vii> a$ove#
=$> State $y how much the draft $alance sheet failed to $alance#
7or!ings =the journal entries to correct the errors>5
=i> Sales ?8,
Suspense ?8,
=ii> Suspense ..,
Creditors =3/,C/3,> ..,
=iii> Suspense 1,,
Provision for depreciation -?,
%ffice furniture 8,,
Profit and Loss Account * profit on disposal ?,
=iv> %ffice e2uipment /,,
Purchases /,,
Profit and Loss Account * depreciation 1,,
Provision for depreciation 1,,
=v> 0rawings -1,
Purchases -1,
=vi> 0iscounts allowed .,
0iscounts received .,
Suspense 1E,
8,
Advanced-Level
=vii> Prepayments * insurance .,
Profit and Loss * power e)pense -8
Accruals * power -8
Profit and Loss * insurance .,
=a>
Statement to correct the net profit
+ +
Adjustments for net profit A"E?3
Add5 Profit on disposal * 9urniture ?,
Purchases overstated ( wrong de$it to purchases /,,
Purchases overstated ( unrecorded drawing of goods -1,
%verstated insurance e)pense ., E?,
?"?33
Less5 Sales overstated ?8,
Provision for deprecation ( e2uipment 1,,
Adjustments for discounts allowed T received 1E,
Accruals omitted ( understated power -8 1",88
A"?11
=a>
Statement of correcting the capital employed
+ +
%riginal capital employed at year end -?",/8
Less5 0ecrease in net profit 1A8
0rawing -1, 8?8
Adjusted capital employed at year end -A"AE,
=$>
Suspense Account
+ +
Creditors .., 6alance $Bd =$#f#> 1E,
0isposal of office e2uipment 1,, Sales ?8,
0iscounts received .,
0iscounts allowed .,
81
Advanced-Level
1",., 1",.,
8-

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Correction of errors (With answers)

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