SUSPENSE ACCOUNTS

During the preparation of ledger accounts, a number of errors do occur and are not immediately
discovered. Some of the errors are discovered during the drafting of the Trial Balance but others are not
discovered. The six common types of errors are not revealed by the preparation of a trial balance,
however those that are revealed by the trial balance are corrected via the suspense account to clear the Page | 1
difference. These errors may be made in the subsidiary books, ledger accounts or trial balance. Errors in
the subsidiary books are mainly due to wrong addition while errors in the ledger are due to incorrect
posting from the journal to the ledger, single entry, when a transaction has been posted to the wrong
side and arithmetical errors. Errors in the trial balance may be due to omission, when an amount is
incorrectly transferred from the ledger to the trial balance, entering an account balance on the wrong
side and arithmetical errors when totaling the trial balance.

C. Makombe prepared the following trial balance 0n 30 June 2005 and in order to make it balance, he
opened a suspense account.

DR CR
$ $
Capital 20 000
Cash 300
Bank 2 000
Stock (1 July 2005) 4 800
Motor vehicles at cost 16 000
Office equipment 7 900
Provision for depreciation: Motor vehicles (1 July 2005) 4 100
: Office equipment (1 July 2005) 2 000
Purchases and sales 18 000 30 000
Discounts allowed and received 1 600 1 200
Carriage inwards 400
General expenses 700
Rent and rates 2 300
Debtors and creditors 3 000 2 800
Drawings 2 750
Returns inwards and returns outwards 550 700
Suspense 500
60 800 60 800

Before annual financial statements were prepared, the following errors were discovered:

i. A credit sale of $440 to O. Mutezo had not been posted to the debtor’s personal account.
ii. The discounts received column of the cash book had been undercast by $40.
iii. A balance of $150 on the commission received account had been omitted from the trial balance.
iv. A typewriter bought for $540 on credit from Office Suppliers Ltd had been posted to the Office
Equipment Account and Office Suppliers Ltd Account as $450.
v. Returns inwards of $125 was credited to the returns outwards account.
Required

a) Prepare journal entries to correct the above errors.

b) Prepare the suspense account to eliminate the difference.
c) Prepare a corrected trial balance
d) Prepare a statement of corrected Net profit given that net profit for the year was $20 000. Page | 2

SOLUTION

a) Journal entries

DR CR
$ $
i. Debtors (O. Mutezo) a/c 440
Suspense a/c 440
ii. Suspense a/c 40
Discount received a/c 40
iii. Suspense a/c 150
- -
iv. Office Equipment a/c 90
Creditors (Office Suppliers) a/c 90
v. Returns inwards a/c 125
Returns outwards a/c 125
Suspense a/c 250

b) Suspense Account
2005 $ 2005 $
June 30 Trial balance difference 500 June 30 Debtors (O. Mutezo) 440
Discount received 40 Returns inwards 125
Trial balance omission 150 Returns outwards 125
690 690

c) Corrected Trial Balance as at 30 June 2005

DR CR
$ $
Capital 20 000
Cash 300
Bank 2 000
Stock (1 July 2005) 4 800
Motor vehicles, at cost 16 000
Office Equipment, at cost 7 990
Provision for depreciation (1 July 2005) on: Motor vehicles 4 100
: Office Equipment 2 000
Purchases and Sales 18 000 30 000
 Discounts allowed and Discounts received 1 600 1 240
Carriage inwards 400
General expenses 700
Rent and rates 2 300
Debtors and Creditors 3 440 2890
Drawings 2 750 Page | 3
Commission received 150
Returns inwards 675
Returns outwards 575
60 955 60 955

d) Statement of corrected Net Profit

$
Net profit per draft accounts 5 000
Add discount received omitted 150
Less: Returns inwards not recorded 125
Returns outwards overstated 125 (250)
Corrected Net profit 4 900

Exercises

1 C. Musana prepared the following Trial Balance as on 31 December 2015. His net profit for the
year was $4 000.

DR CR
$ $
Capital 20 000
Drawings 9 000
Fixtures and Fittings 5 600
Debtors 9 500
Creditors 4 700
Stock 7 900
Cash at bank 8 640
Sales 96 700
Purchases 65 500
General expenses 15 760
121 900 121 400

As the Trial Balance totals did not agree, a Suspense Account was opened for the difference. The
following errors were later discovered:

i. The purchase of additional fixtures and fittings for $400 had been posted from the Cash Book to
the Purchases Account.
ii. The sales day book had been overcast by $200.
 iii. A sale to B. Lee had been correctly entered in the sales day book as $227 but was wrongly
posted to his account as $272.
iv. The purchase of goods from M. Sakala for $250 had been posted to the wrong side of her
account.
v. An item of $146 had been debited twice in the general expenses account.
vi. The creditors total of $4 709 had been wrongly entered in the Trial balance as $4 700. Page | 4

Required

a) Prepare Journal entries to correct the above errors.

b) Write up the Suspense Account
c) Prepare a corrected Trial Balance
d) Draw up a statement of corrected Net Profit after correcting into account the above errors.

2 On 31 March 2001, the Trial Balance of T. Sithole failed to agree. The debit balance totaled $18
810 while the credit balances totaled $19 130. The following errors were later identified:
i. The sales day book total of $11 320 had been posted to the ledger as $11 200
ii. Discount allowed amounting to $450 had been posted from the cash book to the wrong
side of the Discount allowed account.
iii. A payment of $1 800 for repairs to the firm’s delivery van, correctly recorded in the cash
book, had been debited to the delivery van’s account.
iv. A debt of $360 due from R. Tamuka was considered irrecoverable. This amount had
been recorded in the bad debts account. No other entry had been made.
v. The total in the purchases day book had been overstated by $100.

You are required to:

a) Show the journal entries necessary to correct the above errors.

b) Write up the suspense account.

3 D. Nyambare prepared a trial balance on 31 December whose totals disagreed, credits

exceeding debits by $34 200. The net profit for the year amounted to $589 000.
The following errors were discovered after the preparation of year-end final accounts.
i. The purchases book had been undercast by $21 200.
ii. The purchases returns balance was calculated as $19 400 instead of $29 400.
iii. Repairs to office equipment amounting to $52 000 had been debited to office
equipment account.
iv. The sale of goods on credit to R. Patel for $60 000 had been omitted from the books.
v. Included in the sundry expenses balance of $81 000 is a payment of $20 000 for
Nyambare’s private telephone bill.
vi. Discounts allowed of $11 500 had been credited to Discount Received account

You are required to prepare:

a) Journal entries necessary to correct the above errors

b) Prepare a Suspense Account
c) A statement of corrected Net Profit for the year
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