Suspense Account and Correction of Errors

Types of Errors

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1. Errors that are not detected from the Trial Balance

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2. Errors that are detected from the Trial Balance

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Suspense Account

A suspense account is a temporary resting place for an entry that will end up somewhere else
once its final destination is determined. There are two reasons why a suspense account could be
opened:

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Ms. K. Kalaipriya, MBA (PIM, USJ), BBA (Col.), ACMA (UK), CGMA. Page 1
Question 1

Amal business Trail Balance was not agreed as at 31 March 2014 and the difference was entered
into a suspense account temporarily. The book keeper prepared the financial statement with the
suspense account and said the draft profit is Rs. 365,000. Following errors were found when
checking reasons for differences.
1. Posting the payment of Rs. 4,500 for telephone bill as Rs. 5,400 to the telephone account.
2. Rs. 3,200 of discount allowed was recorded in the debtors account correctly, but it was
posted to discount received account as a received discount.
3. Total sales day book was Rs.9,000 less. The organization is maintaining the debtors ledger
and creditors ledger separately.
4. Rs. 14,200 worth of purchasing invoices was totally omitted from the books.
5. Office equipments purchased Rs. 16,000 on the 1st April 2013 was posted to office
expenses account. It has to be made 10% depreciation for these equipments.
6. Accrued telephone bills of Rs. 3,100 were not recorded in accrued expenses account.
7. Carried forward balance of a debtor amounting Rs.3,400 was brought as Rs. 4,300.
8. Petty cash balance of Rs. 4,400 was not taken to the Trial Balance as at 31 March 2014.
9. The balance loan to employees account of Rs. 67,900 was posted to the Trial Balance as
Rs.76,900.
10. Debit note of Rs. 1,350 issued when returning goods to supplier was recorded as Rs.1,530
in the return outward daybook.
11. Debit side of the salaries account was totaled with Rs.1,100 additional amount.
12. Sales on credit terms to the employees of Rs.14,500 was not accounted.
13. Rs. 36,500 worth of goods were drawn by Amal's wife time to time but they were not
recorded in books.
14. Sugath was in the debtors ledger and creditors ledger as well of Rs. 15000, when setting
off those two balances, the entry was kept only in the debtors ledger as a contra entry.
15. Machine and equipments purchased on 1st July 2013 of Rs. 180,000 was depreciated for
the whole year at 12.5%.

Ms. K. Kalaipriya, MBA (PIM, USJ), BBA (Col.), ACMA (UK), CGMA. Page 2
 You are required to prepare the following;
a. Journal entries for correcting the errors (Narratives are not required)

Question 2

The trial balance of Debbie Traders at 31 March 2014 did not agree. A suspense account was
opened to record the net credit difference of Rs.3,996. The draft net profit for the year amounted
to Rs.14,290. Subsequent checking of the records revealed the following errors:
1. Bank charges of Rs.270 appeared in the cash book but had not been posted to the general
ledger.
2. Cheques totaling Rs.3,450 were sent to creditors on 31 March 2014 but had not been
recorded in the books.
3. Returns to Smith Limited for Rs.880 had been entered correctly in the returns outwards
journal but had been posted to Smith Limited’s account as Rs.1,080.
4. The sales proceeds of a fully depreciated motor vehicle had been credited to the sales
account as Rs.8,600. The cost of the motor vehicle was Rs.12,000.
5. Office equipment costing Rs.7,500, was taken from the showroom for the use of the owner,
but no entries in respect of this had been made.
6. Discounts received of Rs.210 had been credited to purchases as Rs.120.
7. Credit sales of Rs.1,997 had been correctly recorded in the customer’s account, but had
been debited to the selling expenses account as Rs.1,979.

Required:
(a) Open a suspense account for the difference between the trial balance totals. Prepare the journal
entries necessary to correct the errors and eliminate the balance on the suspense account.
Narratives are not required.

(b) Draw up a statement showing the revised profit after correcting the above errors.

Ms. K. Kalaipriya, MBA (PIM, USJ), BBA (Col.), ACMA (UK), CGMA. Page 3
Question 3
Write the corrective journal entries for the following;
1. Recording as Rs. 1,000 in the purchase journal, the goods which were purchased for Rs.
10,000 from Perera Co.
2. Receipt of Rs. 6,300 from Mr. Silva was recorded correctly in the cash book but recorded
in Silva's account as Rs. 3,600.
3. Not recording the credit purchase from Siridasa company in the purchase journal
Rs.10,000.
4. Payment made to a creditor Mr. Perera is recorded only in Cash Book Rs. 13,000.
5. A credit purchase of Rs. 10,000 was recorded as Rs. 1,000 in creditors account and a
payment of wages Rs. 9,000 is recorded only in cash book.
6. An expenditure of Rs. 40,000 incurred for converting the motor vehicle to be run with gas
was debited to the motor vehicle running expenses.
7. Goods purchased on credit from Piyadasa company for Rs. 8,000 was recorded twice in
the purchase journal.
8. Receipt from the debtors A Nimal has been correctly recorded in the cash book but credited
to H Namal account Rs.7,800.
9. Purchase return of Rs.500 to Perera Company was correctly credited to purchase return
account but credited to Perera Company also.
10. Under casting of debit side of the plant account by Rs. 100,000

Ms. K. Kalaipriya, MBA (PIM, USJ), BBA (Col.), ACMA (UK), CGMA. Page 4