AFT 04101-BOOKKEEPING

AND ACCOUNTS

Correction of
Errors
Accounting Errors

 Errors of accounting are mistakes or

omissions by accounting assistants and
accountants due a lack of
expertise,incompetence,carelessness,jo
b strain, whimsy or inattention.
 Errors not affecting trial balance
agreement
 Errors affecting trial balance agreement
Errors not affecting trial balance
agreement
E.g.
 Errors of commission
 Errors of principle
 Errors of original entry
 Errors of omission
 Compensating errors
 Complete reversal of entries
Errors affecting trial balance
agreement
 Suspense account
Examples of account Correcting entry
1. Asset
2. Purchases
Increase – Debit
3. Expenses
Decrease - Credit
4. Returns Inwards
5. Drawings
Examples of account Correcting entry
1. Liabilities/Capital
2. Sales Increase – Credit
3. Income Decrease – Debit
4. Returns Outwards
Errors Not Affecting Trial
Balance Agreement
Errors of Commission

 The correct amount is entered but in a

wrong personal account
Example

 A purchase of goods from C.Lee has

been posted to the credit side of C.Lai’s
account in error, amounting to $500.
The correcting entries should be:

Original entry: Dr Purchase $500

Cr C Lee $500

Wrong entry: Dr Purchase $500

Cr C Lai $500
 The journal
$ $
C.Lai 500
C.Lee 500
Purchases entered in wrong personal account, now corrected.
 C. Lai
$ $
C.Lee 500 Purchases 500

C. Lee
$
C.Lai 500
Errors of Principle

 An item is entered in the wrong type of

account due to misunderstanding of the
nature of the item.
Example
 Office equipment purchased for $1,000
in cash has been debited to an office
expenses account. The correcting
entries should be:

Original entry: Dr Office Equipment $1000

Cr Cash $1000

Wrong entry: Dr Office Expenses $1000

Cr Cash $1000
 The journal
$ $
Office Equipment 1,000
Office Expenses 1,000
Purchase of office equipment wrongly entered in the office expenses
account, now corrected.
 Office Expenses

$ $
Cash 1,000 Office Equipment 1,000

Office Equipment

$
Office Expenses 1,000
Errors of Original Entry

 Wrong original figure is entered in the

journals, and hence posted incorrectly
to the accounts.
Example

 A payment of $1,200 to a creditor,

M.Wong, has been entered as both a
debit and credit as $1,000. The
correcting entries should be:

Original entry: Dr Mr. Wong $1200

Cr Bank $1200

Wrong entry: Dr Mr. Wong $1000

Cr Bank $1000
 The journal
$ $
M Wong(1200-1000) 200
Bank 200
Payment of $1,200 incorrectly entered as $1,000, now corrected.
 Bank

$
M.Wong 1,000
M. Wong 200

M. Wong

$
Bank 1,000
Bank 200
Errors of Omission

 A transaction has been completely

omitted from the accounts.
Example

 A sale of $400 to John Leung has been

completely omitted from the accounts.
The correcting entries should be:

Original entry: Dr John Leung $400

Cr Sales $400

Wrong entry: No entry

 The journal
$ $
John Leung 400
Sales 400
A sale of $400 was omitted, now corrected.
 Sales

$
John Leung 400

John Leung

$
Sales 400
Compensating Errors

 Debit side errors are equal to credit side

errors.
Example

 The purchases account was undercast

by $2,200, and the sales account was
also undercast by $2,200. The
correcting entries should be:
 The journal
$ $
Purchases 2,200
Sales 2,200
Purchases and sales accounts were undercast by $2,200, now
corrected.
 Purchases

$
Sales 2,200

Sales

$
Purchases 2,200
Complete Reversal of Entries

 The correct amounts are entered in the

wrong sides of the two appropriate
accounts.
Example
 The purchase of goods on credit from
M. Lok for $60 was entered on the debit
side of M. Lok’s account and the credit
side of the purchases account. The
correcting entries should be:

Original entry: Dr Purchase $60

Cr M Lok $60

Wrong entry: Dr M Lok $60

Cr Purchase $60
 The journal
$ $
Purchases ($60 x 2) 120
M. Lok ($60 x 2) 120
Purchases from M. Lok incorrectly debited to his account and
credited to the purchases account, now corrected.
 Purchases

$ $
M. Lok 120 M. Lok 60

M. Lok

$ $
Purchases 60 Purchases 120
Errors Affecting Trial Balance
Agreement
Errors affecting trial balance
agreement may occur when
 (i) recording transactions in the
accounts:
– (1) omitting a debit or credit entry
– (2) posting a wrong amount to one of the
accounts
– (3) recording an entry on the wrong side
• E.g. a debit entry entered as a credit or a credit
entry as a debit
 (ii) Balancing of accounts:
Incorrect calculation of a balance
– E.g. overcast or undercast
 (iii) Drawing up a trial balance:
(1) omitting a balance from the trial balance
(2) incorrectly posting an amount to the trial
balance
(3) incorrectly posting a balance to the wrong
side of the trial balance
Errors where the trial balance
does not balance
 Single sided entry a debit entry has been made but
no corresponding credit entry or vice versa.
 Debit and credit entries have been made but at
different values.
 Two entries have been made on the same side.
 An incorrect addition in any individual account, i.e.
miscasting.
 Opening balance has not been brought down.
 Extraction error “ the balance in the trial balance is
different from the balance in the relevant account.
 Corrections to any of the six errors mentioned above will affect
the suspense account.
Suspense Account

 When the trial balance does not agree,

the amount of the difference is entered
in a suspense account. The suspense is
an account created to temporarily
accommodate the trial balance
difference. The effort should made to
correct the errors so as to eliminate the
suspense account.
Example 1
 The trial of Rojas Rwakatare Ltd. failed to agree by TZS
600,000, the debit side being shorter than the credit side. The
following errors were discovered:
 Return inwards account was undercasted by TZS 100,000
 Payment of TZS 300,000 to Royce, a creditor, was correctly
recorded in the cash book but credited in the Royce account.
 Discount received of TZS 50,000 was debited in the discount
allowed account.
 Cash sales of TZS 100,000 was posted twice .
 Required
a) Prepare journal entries to correct the above errors
b) Suspense account.
Example 2
 The following errors have been
discovered in the books of accounts
 Cash sales TZS 280,000 completely
omitted from the books
 Credit sales made to H. Moshi TZS
900,000 debited in H. Mosha’s Account
 Motor van purchased for TZS
30,000,000 recorded in the purchases
account
 Cash purchased of TZS 1400,000
credited in the purchases account, with
the cash account being debited
 Credit sales of TZS 490,000 to Janifer
recorded in the Sales day book as TZS
940,000
 Sales account overstated by TZS
100,000 and the rent account
overstated by TZS 100,000
 Cash sales TZS 200,000 entered and
posted twice in the books of account
 Solution
 Cash sales TZS 280,000 completely
omitted from the books
TZS TZS

Cash 280,000
Sales 280,000
Being Cash sales omitted, now corrected.
 Solution
 Credit sales made to H. Moshi TZS
900,000 debited in H. Mosha’s Account
TZS TZS

H. Moshi 900,000
H. Mosha 900,000
Being correction of errors of commission.
 Solution
 Motor van purchased for TZS 30,000,000
recorded in the purchases account

TZS TZS

Motor van 30,000,000

Purchases 30,000,000
Being correction of errors of Accounting Principles
 Solution
 Cash purchased of TZS 1400,000 credited in
the purchases account, with the cash account
being debited
TZS TZS

Purchases (1,400,000x2) 2,800,000

Cash (1,400,000x2) 2,800,000
Being correction of errors of Complete Reversal of Entries
 Solution
 Credit sales of TZS 490,000 to Janifer
recorded in the Sales day book as TZS
940,000
TZS TZS

Sales (940,000-490,000) 450,000

Janifer (940,000-490,000) 450,000
Being correction of errors of Original of Entries
 Solution
 Sales account overstated by TZS 100,000 and the
rent account overstated by TZS 100,000

TZS TZS

Sales 100,000
Rent 100,000
Being correction of errors of compensation
 Solution
 Cash sales TZS 200,000 entered and posted
twice in the books of account

TZS TZS

Sales 200,000
Cash 200,000
Being correction of errors of Duplication
Review/Tutorial Questions

Qn1: For each of the following transactions, pass

journal entries to correct errors
1.A business records payment of wages £100 by
cheque. In fact the wages above were paid in
cash, not by cheque
2.A business records a sale on credit to P, value
£300. The sale was actually made to Q, not to P
3. A business records the purchase of goods for
£250, with payment by cheque. The business
discovers that the transaction above was
recorded in error, and never in fact took place
4. A business receives an invoice for goods
purchased from X, value £1 000. The invoice
above contained an error. The actual value of
the goods purchased was only £900
Qn 2: For each of the following transactions, state the type of error
being made and also pass journal entries to correct errors.
1.Carriage inwards of £45 entered in both accounts as £67.
2.Purchases on credit of £32 from S Nutt was debited to Nutt’s
account and credited to purchases.
3.Business insurance of £32 was actually a payment made for the
owner’s private insurance.
4.Sales on credit for £89 to J Morrissey were debited to the account
of J Munson.
5.Purchases of goods for resale £90 was entered into a fixed asset
account.
Qn3: For each of the following transactions,
state the type of error being made.
a)Payment to A Johnson for £45 missed out of
accounts.
b)Returns inwards from F Ramseyer of £43
entered in both accounts as £34.
c)Sale of equipment which was bought for
resale entered in equipment account.
d)Cash contributed by owner to business was
debited to capital and credited to cash.
e)Discounts received of £43 credited to sales.
f) Motor expenses of £45 was mistakenly
entered into the motor vehicles account.
g) Purchase of equipment on credit for £340
was entered into the purchases account.
h) Goods returned to C Morley worth £32 was
debited to the account of C Morton.
i) A payment of £18 made to creditor, P Infanti,
was not entered in the accounts.
j) Sales of £18 on credit to P Currie was
debited to sales and credited to Currie’s
account.
Qn4:For the following transactions, produce journal
entries to correct the errors that have been made. No
narratives are required.
1.Sales of goods for £200 have been credited to the
motor vehicles account.
2.Purchases of goods for cash £100 has not been
entered in the ledger accounts.
3.Sales of goods on credit of £82 to T White were
entered by mistake in W Thite accounts.
4.Returns outwards of £117 to M Chase were entered in
both accounts as £171.
5.A cash withdrawal from the bank of £32 was debited to
the bank and credited to the cash account.
Qn5: For the following transactions, produce journal entries
to correct the errors that have been made. No narratives are
required.
1.Business wages of £280 was entered in the machinery
account by mistake.
2.Sales on credit to S Painter for £89 were entered in both
accounts as £98.
3.Capital contributed from the owner of a machine worth
£500 was credited to the sales account by mistake.
4.Returns inwards of £32 from C Throup were entered on the
wrong side of both accounts.
5.Cash and cheques paid for insurance totalling £76 were
treated as business expenses but it later transpired that half
of this amount was for the owner’s private insurance.
Qn6: For the following transactions, produce journal
entries to correct the errors that have been made. No
narratives are required.
1.Purchases of goods on credit for £38 from S Barnes
were entered by mistake in the account of S Baines.
2.Cheque received from M Brassington for £46 was
entered in both accounts as £64.
3.Motor repairs of £32 were treated as Motor vehicles.
4.A payment by cheque to A Stacey, a creditor, of £97
was completely missed out.
5.A sale on credit to J Spillane for £32 was entered as
£43.
Qn7: For the following transactions, produce journal
entries to correct the errors that have been made. No
narratives are required.
1.Repairs paid in cash for £97 was entered in both
accounts as £79.
2.A sale on credit to C Quinn for £32 was debited to
Sales and credited to Quinn’s account.
3.Commission received of £156 by cheque was missed
out from the ledgers.
4.Rent paid by cheque for £760 included rent of the
owner’s private residence for £420.
5.Advertising paid of £34 cash was entered in both
accounts as £43.