Correction of Errors

Advanced-Level
Correction of errors (With answers)
Errors
Errors NOT affecting trial Errors AFFECTING trial

balance agreement (six) balance agreement
Errors of commission The following are
Errors of principle EXAMPLES ONLY:
Errors of original entry Incorrect calculations in any
Errors of omission account
Compensating errors Making an entry on only one
Complete reversal of entries account, i.e. a debit but no
credit OR a credit but no
debit.
Entering a different amount
on the debit side
from the amount on the
credit side, or vice versa.
… many other errors…
Correction by DOUBLE
ENTRY
Step 1 Show
corrections using
journal entries
Step 2 Post journal
entries to relevant
ledger accounts Suspense account
Enter the difference in the
trial balance in the suspense
account
Correction by DOUBLE
ENTRY
Step 1 Show
corrections using
journal entries
Step 2 Post journal
entries to suspense
account AND/OR
relevant ledger
accounts
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Advanced-Level
Errors Not Affecting Trial balance Agreement

Procedure of Correction of Errors:
WHAT IS RIGHT?  WHAT HAS BEEN WRONG?  ADJUSTMENTS

Identify the correct Identify the entries and Make the
double entries in amounts which are wrongly appropriate
correct amounts recorded. adjustments.
1. Errors of omission – where a transaction is completely omitted from the books.
Example one ~ Electricity accrued and rent prepaid amounted to $100 and $200 respectively
were both omitted. In addition, stationery stock of $95 was found to be unrecorded in the final
accounts.
Date Particular Dr Cr
Profit and Loss account – electricity 100
Accruals 100
Prepayments 200
Profit and Loss account – rent 200
Stationery stock 95
Profit and Loss account – stationery 95
Example Two ~ Trading stock of $1000 was omitted in the stock take.
Stock 1000
Trading account – closing stock 1000
2. Errors of commission- a wrong account of the same class has been debited or credited although
the amount is correct.
Example ~ A cheque for $40 received from J. Jordon had been posted to the account of I. Jordon. It
was also found that the cheque related to a debit previously written off as irrecoverable.
Step 1: Identify the Right Entries
Bank J. Jordon
J. Jordon 40 Bad debts Recovered 40 Bank 40

Bad Debts Recovered
J. Jordon 40
Step 2: Identify the Wrong Entries
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Advanced-Level
Bank I. Jordon
I. Jordon 40 Bank 40
Step 3: Make Appropriate Adjustments

I. Jordon – debtors 40
J. Jordon – debtors 40
J. Jordon - debtors 40
Bad Debts Recovered 40
3. Errors of principle – where an item with correct amount has been entered in the wrong class of
account.
Example one ~ A new van was purchased at $5400 for resale and this transaction had been
entered in the Fixed Assets Register. The company’s policy was to depreciate at 10% on cost of
the motor vehicles held at the year end.

Purchases Bank
Purchases 5,400 Purchases 5,400

Vans Bank
Bank 5,400 Vans 5,400

Purchases 5,400
Vans 5,400
Provision for depreciation ~ vans (overstated) 540

Profit and Loss Account - depreciation 540
4. Errors of original entry – where the original figure is wrong yet the accounts involved in the
double entry are correct.
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Advanced-Level
Example one ~ A credit note received of $121 was wrongly treated as $212.

Creditors Purchases Returns
P. Returns 121 Creditors 121

Creditors Purchases Returns
P. Returns 212 Creditors 212

Purchases Returns (212-121) 91
Creditors 91
Example two ~ Repairs in the sum of $2 750 made to a flat occupied by the owner had been
charged to the firm's maintenance expenses.

Drawings Cash
Cash 2,750 Drawings 2,750

Maintenance expenses Cash
Repairs 2,750 Maintenance 2,750

Drawings 2,750
Maintenance expense 2,750
5. Complete reversal of entries – where the correct accounts are used but each item is shown on
the wrong side of the account.
Example one ~ A refund of $300 to a debtor was recorded as a receipt from him.
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Advanced-Level

Debtors Bank
Bank 300 Debtors 300

Debtors Bank
Bank 300 Debtors 300

Debtors 600
Bank 600
Example Two ~ A rent prepaid of $100 was erroneously treated as an accrual and entered as
such.

Rent
Bal b/d 100

Rent
Bal b/d 100

Accruals 100
Prepayments 100
Rent 200
6. Compensating errors – where errors cancel out each other so that the totals of the trial balance
still agree.
Example ~ Discounts allowed has been under-totaled by $35 and an item in the sales returns
day book of the same amount has not been posted to the relevant account of the customer.
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Advanced-Level

Discount allowed Debtors
+35 +35

Discount allowed Debtors
-35 Sales Returns -35

Discounts allowed 35
Debtors 35
Errors Affecting Trial balance Agreement

1. Errors in posting
Omission of posting ~ A payment of cheque of $146 for stationery had not been posted to the
appropriate nominal account.
Stationery 146
Suspense 146
Overstate (Understate) the amount of posting ~ A purchases of $200 from Mr. Lam was posted
from purchases day book as $2000.
Mr. Lam - creditors 1,800
Suspense 1,800
Post to the wrong side of the correct account ~ A return of $3000 from Mr. Au posted from
sales returns day book to the wrong side of his account.
Suspense 6,000
Mr. Au – debtors 6,000
Post to the wrong side of a wrong account ~ The total, $660, of the discount column on the
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Advanced-Level
credit side of the three-column cash book was posted to the discount allowed account.
Suspense 1,320
Discounts received 660
2. Errors in casting
Overcast (Undercast) an account ~ the debit side of a creditor account was overcast by $60.
Suspense 60
Creditors 60
Overcast (Undercast) a day book ~ The purchases returns day book was overcast by $200.
Purchases returns 200
Suspense 200
Overcast (Undercast) the ending stock figure ~ The work sheet for the stock take at year end
was overcast by $200.
Trading ~ closing stock 200
Stock 200
3. Errors in the carried down/brought down of the prepayments and accruals
Example one ~ The balance brought down at the beginning of the accounting year for prepaid
insurance of $200 was omitted.
Insurance 200
Suspense 200
What if the above error was discovered at the year end of last year instead of the end of current
year?
Prepayments - insurance 200
Suspense 200
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Advanced-Level
Example two ~ The balance brought down at the beginning of the accounting year for accrued rent
of $500 was erroneously brought down as a prepayment of rent. (No error in the balance carried
down at year end of last year.)
Suspense (500x2) 1,000
Rent 1,000
What if the above error was discovered at the year end of last year instead of the end of current
year?
Suspense 1,000
Prepayments – rent 500
Accruals – rent 500
4. Errors in listing
Omission of a balance from a listing ~ A debit balance of $185 has been omitted from the
schedule of debtors, the total of which has been entered in the trial balance.
Debtors – Trial Balance 185
Suspense 185
Place a balance on the wrong side of the trial balance ~ A bank overdraft of $1000 was listed
as a debit balance in the trial balance.
Suspense 2000
Bank overdraft – Trial Balance 2000
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Advanced-Level
Simple example
The following is the Trial balance of Single Ltd as at 31 March 2001:
Single Ltd
Trial balance as at 31 March 2001
Dr. Cr.
$ $
Salaries and wages 3 168
Fixtures 10 000
Bank 6 790
Purchases 62 400
Discount allowed 305
General expenses 595
Stock 12 490
Debtors 8 120
Drawings 4 520
Sales 87 050
Discount received 410
Creditors 5 045
Capital 17 017
108 388 109 522
As the debit side does not agree with the credit side, we need to open a suspense account to make it
balance.
Single Ltd
Trial balance as at 31 March 2001
Dr. Cr.
$ $
Salaries and wages 3 168
Fixtures 10 000
Bank 6 790
Purchases 62 400
Stock 12 490
Debtors 8 120
Drawings 4 520
Sales 87 050
Creditors 5 045
Capital 17 017
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Advanced-Level
Suspense (b.f.) 1 134

109 522 109 522
Suspense account
Difference per trial balance 1 134
After a detailed investigation, the accountant of Single Ltd discovered the following errors:
(a) Sales journal overcast by $350.
(b) Discounts allowed undercast by $100.
(c) Fixtures, bought for $850, have been entered in the cash book but not the fixtures account.
(d) Credit purchase of $166 was entered in the purchases journal only, but not in the creditors
account.
(e) Cheque payment to a creditor of $490 had been debited to the drawings account in error.
Suspense Account
Balance b/d 1,134 Discounts allowed 100
Creditors 166 Sales 350
_ Fixtures _850
1300 1,300
Full example
After the extraction of the balances from the books of Bland, the totals of the trial balance
failed to agree. The following items have subsequently been discovered.
1. The total, $1200, of the discounts received column in the cash book had been posted to debit
side of the relevant account.
2. An old van with a net book value of $8192 was sold at $5000. The van was purchased six
years ago and the depreciation had been provided at 60% p.a. by the reducing balance method.
The sale proceed was entered as cash sales.
3. The payment of $265 for rent had been entered correctly in the cash book but had been
credited to the rent expenses account in the nominal ledger as $256.
4. Invoices for $3000 for advertising expenses had been included in creditors when in fact they
were related to the following period.
5. $1350 worth of goods, sold to a customer but not yet delivered had been included in the ending
stock. On the other hand, goods costing $2000 were sent to an agent on a ‘sale or return’ basis.
These goods had been invoiced at a gross profit margin of 20% and were included in the sales
of the year irrespective of the fact that only $400 of these goods at cost had been sold to date.
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Advanced-Level
6. In arriving at the debtors figure in the trial balance an individual debtor’s balance of $1789 was
incorrectly taken as $7189.
7. No entry had been made in the accounts to record the receipts of a cheque for $60 from White,
a supplier. The cheque was a refund relating to previous overpayment for goods supplied.
8. The amount $200 had been paid on office stationery, but only stationery to the value of $150
had been used. It was discovered subsequently that $60 purchases of stationery was not yet
paid and the unused stationery stock was omitted from the books.
9. A sales invoice of $966 was incorrectly entered in the sales day book as $996 and subsequently
posted to the respective sales ledger account as $969.
10. An amount of $86 received from A. Blunt, a debtor, in settlement of his account had been
treated as a cash sale.
You are required to:
(a) Prepare the journal entries to correct the above errors
(b) Prepare a statement to adjust the drafted profit figure of $11000.
(c) Prepare the suspense account to enter the corrections so as to restore the agreement of the trial
balance.
1 Suspense account 2,400
Discounts received account ($1,200x2) 2,400
2 Sales 5,000
Disposal account 5,000
Disposal account [8,192/(1-60%)6] 2,000,000

Van 2,000,000
Provision for depreciation (2,000,000-8192) 1,991,808

Disposal account 1,991,808
Profit and Loss account ~ Loss on disposal 3,192

Disposal account 3,192
3 Rent 521
Suspense account 521
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Advanced-Level
4 Creditors 3,000
Advertising 3,000
5 Trading a/c 1,350

Stock 1,350
Sales (2,000-400)/80% 2,000

Debtors 2,000
Stock 1,600
Trading – closing stock 1,600
6 Suspense account 5400

Debtors (Trial Balance) 5400
7 Bank 60
Creditors – White 60
8 Stationery stock 110

Stationery 110
Stationery 60
Accruals 60
9 Sales account (996-969) 30

Suspense 27
Debtors 3
10 Sales 86
Debtors ~ A. Blunt 86
Statement for revised net profit

Net Profit before adjustment 11,000
Add: Discounts received understated (1) 2,400
Advertising overcharged (4) 3,000
Stock held by an agent on a ‘sale or return’ basis (5) 1,600
Stationery overcharged (8) 110 7,110
18,110
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Advanced-Level
Less: Cash sales overstated (2) 5,000

Loss on disposal omitted (2) 3,192
Rent expenses understated (3) (265+256) 521
Stock sold but not yet delivered (5) 1,350
Sales overstated (5) 2,000
Stationery undercharged (8) 60
Sales overstated (9) 30
Cash sales overstated (10) 86 12,239
Net Profit after adjustment 5,871
Suspense Account
$ $
Discounts received 2,400 Balance b/d (b.f.) 7,252
Debtors 5,400 Rent 521
Debtors 3 Sales 30
7,803 7,803
Exercise one
Balance Sheet of J Craig as a 31 December 19x1
Fixtures and fitting 12,500 Capital 10,000
Stock 5,000 Net profit for year 8,650
Debtors 2,100 18,650
Cash 50 Drawings 3,930
14,720
Creditors 4,350
Suspense account 580
19,650 19,650
When the above balance sheet was prepared there was still a difference in the trial balance, and
it was necessary to open a suspense account for the amount show.
Subsequently the following errors have been discovered:
(a) The balance of $140 on E Jackson’s account in the sales ledger bad had been brought
forward as $14.
(b) The sales day book had been undercast by $386.
(c) A new cash register costing $310 had been debited to purchases account instead of fixtures
and fittings.
(d) Depreciation of equipment had been entered in the profit and loss account as $1,724 instead
of $1,274.
(e) Discounts allowed of $65 had been posted to the credit of discount received account.
You are required
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Advanced-Level
(i) To provide journal entries necessary to correct the errors;
(ii) To produce a corrected balance sheet showing the amended balance on the suspense
account.
(i)
a E Jackson 126
Suspense 126
b Suspense 386
Sales (Profit and Loss) 386
c Fixture and fitting 310

Purchases 310
d Suspense 450
Profit and Loss ~ depreciation 450
e Discounts received 65
Suspense 130
(ii)
Suspense Account
Sales (Profit and Loss) 386 Balance b/d 580
Profit and Loss 450 E Jackson 126
836 836
Balance Sheet of J Craig as a 31 December 19x1

Fixed Assets Capital 10,000
Fixtures and fitting (12500 + 310) 12,810 Add: Net profit for year 9,666
(8650 + 386 + 310 –130 + 450) 19,666
Current Assets Less: Drawings 3,930
Stock 5,000 15,736
Debtors (2100 + 126) 2,226 Current Liabilities
Cash 50 Creditors 4,350
20,086 20,086
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Advanced-Level
Statement for revised net profit
Net Profit before adjustment 8,650

Add: Sales undercast 386
Purchases overcast 310
Depreciation overcast 450 1,146
9,796
Less: Discounts allowed undercast 65
Discounts received overcast 65 130
Net Profit after adjustment 9,666
Exercise Two
(a) An inexperienced book-keeper has drawn up a trial balance for the year ended 30 June
19X7:
Dr Cr
$ $
Provision for doubtful debts 200
Bank overdraft 1,654
Capital 4,591
Creditors 1,637
Debtors 2,983
Drawings 1,200
Office furniture 2,155
Purchases 10,923
Returns inwards 330
Rent and rates 314
Salaries 2,520
Sales 16,882
Stock 2,418
Provision for depreciation of furniture 364 __ __
24,938 25,002
Required:
(a) Draw up a ‘corrected’ trial balance, debiting or crediting any residual error to a suspense
account.
(b) Further investigation of the suspense account, ascertained in (a) above, reveals the following
errors:
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Advanced-Level
(i) Goods bought from J.Jones amounting to $13 had been posted to his account as $33.
(ii) Furniture which had cost $173 had been debited to the general expense account.
(iii) An invoice from Suppliers Ltd for $370 had been omitted from the purchase account, but
credited to Suppliers Ltd’s account.
(iv) Sales on credit to A. Hope Ltd for $450 had been posted to the sales account, but not to the
debtors ledger.
(v) The balance on the capital account had been incorrectly brought forward in the ledger, and
should have been $4,291.
(vi) An amount of $86 received from A. Blunt, a debtor, in settlement of his account had been
treated as a cash sale.
(vii) Discount allowed has been undertotalled by $35.
Required:
Prepare journal entries correcting each of the above errors and write up the suspense account.
Trial Balance for the year ended 30-6-19X7
Dr Cr
Provision for doubtful debts 200
Bank Overdraft 1,654
Capital 4,591
Creditors 1,637
Debtors 2,983
Drawings 1,200
Office furniture 2,155
Provision for depreciation ~ Furniture 364
Purchases 10,923
Returns inwards 330
Rent and Rates 314
Salaries 2,520
Sales 16,882
Stock 2,418
Suspense 1,175
25,580 25,580
(b)
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Advanced-Level
(i) J Jone (creditors) 20
Suspense 20
To correct the error of overstate the amount of posting
(ii) Furniture 173

To correct the error of principle
(iii) Purchases 370

Suspense 370
To correct the omission of posting
(iv) A Hope Ltd (debtors) 450

Suspense 450
To correct the omission of posting
(v) Capital (4591-4291) 300

Suspense 300
To correct the brought down balance of capital
(vi) Sales 86
A Blunt (debtors) 86
(vii) Discounts allowed 35

Suspense 35
To correct the error of undercasting
(c)
Suspense Acocunt
19-7 $ 19-7
30/6 Balance b/d 1,175 30/6 J Jones 20
Purchases 370
A Hope Ltd 450
Capital 300
Discounts Allowed 35
1,175 1,175
Exercise Three
After completing a draft profit and loss account for the year ended 30 April 19X0 of A.B.C.
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Advanced-Level
Limited the following balances remained and a suspense account entry was required for the
difference which had arisen:
$ $
Fixed assets: at cost 60,000
Provision for depreciation 31,000
Ordinary share capital 35,000
Retained earnings 12,000
Stock in trade, at cost 14,000
Sales ledger control account 9,600
Purchases ledger control account 6,500
Balance at bank 1,640
Difference on balances suspense account 740
85,240 85.240
After investigation the following discoveries were made:

(a) A rent payment of $350 in March 19X0 had been debited in the sales ledger control account.
(b) Although instructed to do so, the accounts clerk had not set a debt due from B. Bell of $1,560
in the sales ledger control account against an amount due to B. Bell in the purchases ledger
control account.
(c) Discounts allowed of $500 during the year ended 30 April 19X0 had not been recorded in the
company’s accounts.
(d) No entry had been made for refund of $2,620 made by cheque to L. Green in March, 19X0, in
respect of defective goods returned to the company. Note: The correct entries had been made
previously for the return of the goods to A.B.C. Limited.
(e) The purchases day book for February 19X0 had been undercast by $300.
(f) A payment of $1,000 to K. Bloom in January 19X0 for cash purchases had been debited in the
purchases ledger control account. Note: The company does not maintain a credit account with
K. Bloom>
(g) No entries had been made in the company’s books for cash sales of $2,450 on 30 April 19X0
and banked on that date.
(h) No entries had been made in the company’s books for bank charges of $910 debited in the
company’s bank account in December 19X9.
(i) The company’s cash book (bank debit column) had been overcast by $1,900 in March 19X0.
(j) A cheque payment of $8,640 for new fixtures and fittings in April 19X0 had not been recorded
in the company’s books.
(k) A payment by cheque of $1,460 in June 19X9 for stationery had not been posted to the
appropriate nominal account.
Required:
(a) The journal entries for items (a) – (k) above. Note: Narratives are required.
(b) The corrected list of balances at 30 April 19X0.
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Advanced-Level
(a) Profit and Loss ~ Rent 350
Sales Ledger Control 350
(b) Purchases Ledger Control 1,560

Sales Ledger Control 1,560
To set-off the amount due from B. Bell
(c) Profit and Loss ~ Discounts allowed 500

Sales Ledger Control 500
To correct the error of omission
(d) Sales Ledger Control 2,620

Bank 2,620
(e) Profit and Loss ~ Purchases 300

Purchases Ledger Control 300
To correct the error of under casting
(f) Profit and Loss ~ Purchases 1,000

Purchases Ledger Control 1,000
(g) Bank 2,450

Profit and Loss ~ Sales 2,450
(h) Profit and Loss ~ Bank Charges 910

Bank 910
(i) Suspense 1,900

Bank 1,900
To correct the error of over casting
(j) Fixture and fitting 8,640
Bank 8,640
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Advanced-Level
To correct the errors of omission
(k) Profit and Loss ~ Stationery 1,460

Suspense 1,460
To correct the error of omission of posting
List of balance as at 30-4-19X0

Fixed Assets: at cost 68,640
Fixed Assets: provision for depreciation 31,000
Ordinary share capital 35,000
Retained earnings 9,930
Stock in trade, at cost 14,000
Sales ledger control 9,810
Purchases ledger control 6,240
Balance at bank (O/D) 9,980
Suspense 300
92,450 92,450
Exercise Four
Sharples and Syvret are partners in a business producing ornaments in pottery. Syvret was in
charge of sales and it was agreed that she be paid a commission of 2% on sales before distribution
of profits. The profit sharing ration is 2:1.
Stokes, a partly qualified accountant, kept the books. The following errors had been made and
a suspense account had been opened to effect a balance on completing the draft accounts:
1. A new van was purchased for $5,400 and this amount had been entered in the Purchases
Day Book, and charged to the Purchases Account.
2. The new van replaced the firm’s two other vehicles costing $2,700 each which had been
depreciated by 10% per annum on a reducing balance for three years and two years
respectively, and which were sold for $3,600 in total, cheques for which amount had been
posted to the sales account. No other entries were made in the account.
3. Depreciation of furniture and fittings of $1,440 had been overlooked.
4. Discount allowed of $24 had been correctly entered in personal accounts but had been
treated in the general ledger as discount received.
5. Goods returned inwards, value $360 had been entered in the general ledger correctly but
had not been posted to the debtor’s personal account. Control accounts are not
maintained.
6. A cheque for $40 received from J.Gillies had been posted to the account of I.Giles. The
cheque related to a debt previously written off as irrecoverable.
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Advanced-Level
7. Stock costing $200 was sent from the shop in Bournemouth to Syvret’s mother in Jersey
on sale or return. Only $40 of this stock at cost had been sold to date.
The gross profit is 20% of sales.
Required:
(a) Prepare journal entries necessary to correct the accounts.
(b) Produce the adjusted suspense account.
(c) Prepare a statement showing the adjustments to net profit and to partners’ shares of profit.
(a)
1 Motor van 5,400
Profit and Loss ~ Purchases 5,400
Profit and Loss ~ Depreciation 540

Provision for depreciation – motor van 540
2 Profit and Loss ~ Sales 3,600

Profit and Loss ~ Loss on disposal 555
Motor van 5,400
To correct the error of principle and omission
3 Profit and Loss ~ depreciation 1,440

4 Profit and Loss ~ Discounts Allowed 24

Profit and Loss ~ Discounts Received 24
Suspense 48
To correct the error of the wrong side of a wrong account
5 Suspense 360
Debtors 360
To correct the error of omission of positng
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Advanced-Level
6 I Giles - debtors 40
J Gillies - debtors 40
To correct the error of commission
J Gillies - debtors 40
Profit and Loss ~ Bad Debts Recovered 40
To enter the bad debts recovered.
7 Stock 160
Trading ~ Closing stock 160
Profit and Loss ~ Sales 200

Debtors 200
(b)
Suspense Account
Debtors 360 Balance b/d (Balancing fig.) 312
360 360
(c)
Statement showing the adjustment to net profit
Items added to the net profit $ $
Purchases overstated 5,400
Bad debts recovered 40
Closing stock understated 160 5,600
Less: Items deducted from net profit

Sales overstated 3,600
Loss on disposal 555
Discounts allowed understated 24
Discounts received overstated 24
Depreciation of furniture and fitting understated 1,440
Depreciation of motor van understated 540
Sales overstated 200 6,383
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Advanced-Level
The decrease in net profit (783)
Commission to partner (3,600 + 200) x 2% = 76

Adjustment to the share of profit –$783 + $76 = -$707
Decrease in the sharing of profit

Sharples: 707 x 2/3 = 471.33
Syvret: 707 x 1/3 = 235.67
Exercise Five
Wyre and Holmes
Balance Sheets as at 31 December 19-1
$ $ $ $ $
Fixed assets (at cost less depreciation) Capital accounts
Premises 6,000 Wyre 7,000
Vehicles 1,090 Holmes 7,000 14,000
Equipment and tools 2,480
9,570
Current assets Current accounts
Stock 4,526 Wyre (credit) 641
Debotrs 2,339 Holmes (debit) 432 209
Less: provision 233 2,106
for bad debts
Current liabilities
Prepayments 144 Creditors 2,508
Bank and cash 1,940 8,716 Accruals __128 2,636
18,286 16,845
The balance sheet of the partnership of Wyre and Holme, electrical contractors, was drawn up
as shown above. The totals failed to agree and the difference was put into suspense account pending
investigation. The investigation subsequently disclosed that:
(i) The purchase returns daybook had been correctly entered and totaled at $616 but had
not been posted to the ledgers.
(ii) Discounts received, $132, had been debited to discounts allowed.
(iii) The sales account had been under-added by $1,000.
(iv) A credit sale of $147 had been debited to a customer’s account as $174.
(v) A vehicle bought originally for $700 four years ago and depreciated at 20 per cent by
the straight line method on an assumed residual value of $100, had been sold as surplus
to requirements for $150 but no entries, other than in the bank account, had been
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Advanced-Level
passed through the books.

(vi) An accrual of $56 for telephone charges had been completely omitted.
(vii) The partners’ current accounts had been credited with interest on capital at 10 per cent
instead of at the agreed rate of five per cent.
(viii) A bad debt of $152 had not been written off and provision for had debts should have
been maintained at 10 per cent of debtors.
(ix) Wyre’s current account had been credited with a partnership salary of $800 which
should have been credited to Holmes’ current account.
(x) On one stock sheet at 31 December 19-1 a sub-total of $2,983 had been carried forward
as $2,938 and another sheet had been overcast by $100.
(xi) Tools bought for $120 had been inadvertently debited to purchases.
(xii) Holmes had withdrawn, for personal use, goods to the value of $196. No entries had
been made in the books.
The partners shared profits and losses as follows: Wyre 3/5, Holmes 2/5.
Required: (All workings must be shown.)

(a) Prepare a statement of adjustments to net profit for the year.
(b) Redraft the corrected balance sheet as at 31 December 19-1.
Workings:
(i) Creditors 616
(ii) Suspense 264

(iii) Suspense 1,000

Trading ~ sales 1,000
(iv) Suspense 27
Debtors 27
(v) Suspense 150

Provision for depreciation (700x20%x4yr.) 560
Profit and Loss – profit on disposal 10
Vehicles 700
(vi) Telephone 56
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Advanced-Level
Accruals – telephone 56
(vii) Current – Holmes 70

Current – Wyre 70
OR
Current - Wyre 350
Current – Holmes 350
Current - Wyre 420
(viii) Bad debts 152

Debtors 152
Provision for bad debts 233-(2,339-152-27)x10% 17

Profit and Loss 17
(ix) Current – Wyre 800

(x) Trading ~ Closing stock 55

Stock 55
(xi) Tools 120

Purchases 120
(xii) Drawing ~ Holmes 196

Purchases 196
(a)
Statement of adjustments to the net profit for the year ended 31-12-19-1
Items added to net profit $ $
Discounts received understated 132
Discounts allowed overstated 132
Sales understated 1,000
Profit on disposal 10
Decrease in provision for bad debts 17
Purchases overstated 120
Purchases overstated 196
Purchases returns understated 616 2,223
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Advanced-Level
Less: Items deducted from net profit

Electricity understated 56
Closing stock overstated 55
Bad debts understated 152 263
Increase in net profit 1,960
Share of net profit: Wyre = $1,960 x 3/5

= $1,176
Holmes = $1,960 x 2/5
= $784
(b)
Balance Sheet as at 31-12-19-1
Fixed Assets $ $ Capital $ $
Premises 6,000 Wyre 7,000
Vehicles (1,090 – 700 + 560) 950 Holmes 7,000 14,000
Equipment and tools (2,480+120) 2,600 9,550
Current account
Current Assets Wyre (641-800+70+1,176) 1,087
Stock (4,526-55) 4,471 Holmes 886 1,973
Debtors (2,339-152-27) 2,160 (-432-70+800-196+784)
Less: Provision for bad debts (216)
Prepayments 144 Current Liabilities
Bank & Cash 1,940 8,499 Creditors (2,508-616) 1,892
Accruals (128+56) 184 2,076
18,049 18,049
Exercise Six
At the end of the financial year the totals of the trial balance of Chilford failed to agree and the
difference, $213, was credited to a suspense account pending investigation.
Subsequently, the following errors were discovered:
1. Rates, $240, paid in advance at the end of the previous year had not been brought down
on the rates account as an opening balance.
2. A new machine (cost $1100) acquired for use in the business had been debited to
purchases.
3. The sales daybook had been under-added by $500.
4. Surplus items of machinery (held as fixed assets) had been sold at their book value of
$400 on credit and this transaction had been recorded as a normal sale in the sales book.
5. Goods, bought from a supplier for $15, had been credited to his account as $51.
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Advanced-Level
6. Discount allowed, $9, had been correctly recorded in the cash book but had not been
posted to the customer’s account.
7. An amount of $60, owed by a customer, had been missed off he schedule of debtors
balances used as the debtors figure in the trial balance.
8. Goods returned by a credit customer had been correctly recorded in the sales return
daybook as $20, but had been debited to that customer’s account.
The trial balance, before the errors were corrected, was:

Dr Cr
Purchases 41 700
Sales 72 300
Sales returns 1 500
Carriage outwards 4 130
Wages and salaries 23 500
Stock (opening) 19 200
Heating and lighting 7 800
Rent, rates and insurance 5 600
General expenses 6 100
Buildings 10 000
Machinery 9 330
Debtors 8 059
Creditors 4 972
Bank and cash 5 676
Capital (opening) 64 420
142 915 142 702
Suspense (difference) 213
142 915 142 915
Required:
(a) Rewrite the trial balance correcting the errors.
(b) State by how much the profit or loss for the period was affected by the errors.
(c) Post the appropriate correcting entries in the suspense account in order to eliminate the
balance.
Workings (the journal entries to correct the errors) :
1 Rates 240
Suspense 240
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Advanced-Level
2 Machinery 1,100
Purchases 1,100
3 Suspense 500
Sales 500
4 Sales 400
Machinery 400
5 Creditors (51-15) 36
Suspense 36
6 Suspense 9
Debtors 9
7 Debtors – Trial Balance 60

Suspense 60
8 Suspense 40
Debtors 40
(a)
Trial Balance as at the end of the financial year
Dr Cr
Purchases 40,600
Sales 72,400
Sales returns 1,500
Carriage outwards 4,130
Wages & salaries 23,500
Opening stock 19,200
Heating & lighting 7,800
Rent, rates and insurance 5,840
General expenses 6,100
28
Advanced-Level
Buildings 10,000
Machinery 10,030
Debtors 8,070
Creditors 4,936
Bank & cash 5,676
Capital (opening) _______ __64,420
142,766 142,766
(b)
Effects on the net profit
Items added to the net profit $ $
Purchases overstated 1,100
Sales understated 500 1,600
Less: Items deducted from the net profit

Rates understated 240
Sales overstated 400 640
Net increase in net profit 960
(c)
Suspense Account
$ $
Sales 500 Balance b/d 213
Debtor – discounts allowed 9 Rates 240
Debtor – discounts received 40 Creditors 36
Debtor 60
549 549
Exercise Seven
The first draft of the final account of Wilmot for the year ended 31 December 19-1 disclosed
that capital employed was $27,053 and net profit for the year was $6,874. The books of account
had, however, been written up by Wilmot’s daughter, a student, and contained a number of errors.
After a lengthy check of all the entries, the following errors were identified:
(i) Sales on credit had been over-added by $730 in the sales daybook.
(ii) A credit purchase of $450 had been debited to a supplier’s account as $540.
(iii) Some office furniture bought five years age for $300 and depreciated by $270 had been
29
Advanced-Level
sold for $100 but no entries had been made except to record the receipt of the proceeds
in the bank account.
(iv) New office equipment, $500, bought on 1 January 19-1 had been debited to the
purchases account. Depreciation should have been provided at 20 per cent using the
straight line method.
(v) No entry had been made for goods withdrawn by Wilmot for personal consumption,
$210.
(vi) Discounts allowed $90 had been credited to discounts received.
(vii) An accrual for power, $23, and an insurance prepayment, $90, had both been
completely omitted.
Required:
(a) A statement amending the net profit and capital employed figures for each of the items (i) to
(vii) above.
(b) State by how much the draft balance sheet failed to balance.
Workings (the journal entries to correct the errors):

(i) Sales 730
Suspense 730
(ii) Suspense 990

Creditors (450+540) 990
(iii) Suspense 100
Provision for depreciation 270
Office furniture 300
Profit and Loss Account ~ profit on disposal 70
(iv) Office equipment 500

Purchases 500
Profit and Loss Account ~ depreciation 100

Provision for depreciation 100
(v) Drawings 210

Purchases 210
(vi) Discounts allowed 90

Suspense 180
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Advanced-Level
(vii) Prepayments ~ insurance 90

Profit and Loss ~ power expense 23
Accruals ~ power 23
Profit and Loss ~ insurance 90
(a)
Statement to correct the net profit
$ $
Adjustments for net profit 6,874
Add: Profit on disposal ~ Furniture 70
Purchases overstated – wrong debit to purchases 500
Purchases overstated – unrecorded drawing of goods 210
Overstated insurance expense 90 870
7,744
Less: Sales overstated 730
Provision for deprecation – equipment 100
Adjustments for discounts allowed & received 180
Accruals omitted – understated power 23 1,033
6,711
(a)
Statement of correcting the capital employed
$ $
Original capital employed at year end 27,053
Less: Decrease in net profit 163
Drawing 210 373
Adjusted capital employed at year end 26,680
(b)
Suspense Account
$ $
Creditors 990 Balance b/d (b.f.) 180
Disposal of office equipment 100 Sales 730
31
Advanced-Level
1,090 1,090
32

Correction of Errors

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Correction of Errors

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Advanced-Level

Correction of errors (With answers)

Errors NOT affecting trial Errors AFFECTING trial

Errors Not Affecting Trial balance Agreement

WHAT IS RIGHT?  WHAT HAS BEEN WRONG?  ADJUSTMENTS

1. Errors of omission – where a transaction is completely omitted from the books.

J. Jordon 40 Bad debts Recovered 40 Bank 40

Step 3: Make Appropriate Adjustments

Step 1: Identify the Right Entries

Purchases 5,400 Purchases 5,400

Step 2: Identify the Wrong Entries

Bank 5,400 Vans 5,400

Step 3: Make Appropriate Adjustments

Provision for depreciation ~ vans (overstated) 540

Step 1: Identify the Right Entries

P. Returns 121 Creditors 121

Step 2: Identify the Wrong Entries

P. Returns 212 Creditors 212

Step 3: Make Appropriate Adjustments

Step 1: Identify the Right Entries

Cash 2,750 Drawings 2,750

Step 2: Identify the Wrong Entries

Repairs 2,750 Maintenance 2,750

Step 3: Make Appropriate Adjustments

Step 1: Identify the Right Entries

Bank 300 Debtors 300

Step 1: Identify the Wrong Entries

Bank 300 Debtors 300

Step 3: Make Appropriate Adjustments

Step 1: Identify the Right Entries

Bal b/d 100

Step 2: Identify the Wrong Entries

Bal b/d 100

Step 3: Make Appropriate Adjustments

Step 1: Identify the Right Entries

Step 2: Identify the Wrong Entries

-35 Sales Returns -35

Step 3: Make Appropriate Adjustments

Errors Affecting Trial balance Agreement

3. Errors in the carried down/brought down of the prepayments and accruals

Suspense (b.f.) 1 134

You are required to:

(a) Prepare the journal entries to correct the above errors

(b) Prepare a statement to adjust the drafted profit figure of $11000.

Disposal account [8,192/(1-60%)6] 2,000,000

Provision for depreciation (2,000,000-8192) 1,991,808

Profit and Loss account ~ Loss on disposal 3,192

5 Trading a/c 1,350

Sales (2,000-400)/80% 2,000

6 Suspense account 5400

8 Stationery stock 110

9 Sales account (996-969) 30

Statement for revised net profit

Less: Cash sales overstated (2) 5,000

c Fixture and fitting 310

Balance Sheet of J Craig as a 31 December 19x1

Statement for revised net profit

Net Profit before adjustment 8,650

(ii) Furniture 173

(iii) Purchases 370

(iv) A Hope Ltd (debtors) 450

(v) Capital (4591-4291) 300

(vii) Discounts allowed 35