Advanced-Level

Correction of errors (With answers)

Errors

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 &''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/

Correction by DOUBLE ENT ! Step 1 Show corrections using "o#rnal entries Step 2 Post journal entries to rele$ant le%ger acco#nts

-#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
1

Advanced-Level

Errors Not &ffecting Trial balance &greement

Procedure of Correction of Errors:
WHAT IS RIGHT?

WHAT HAS BEEN WRONG?

ADJUSTMENTS
Make the appropriate adjustments.

Identify the correct double entries in correct amounts

Identify the entries and amounts which are wrongly recorded.

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 Accruals Prepayments Profit and Loss account ( rent Stationery stoc! Profit and Loss account ( stationery ./ ./ -,, -,, Particular Profit and Loss account ( electricity 0r 1,, 1,, Cr

E)ample 1wo * 1rading stoc! of +1,,, was omitted in the stoc! ta!e# 0ate Stoc! 1rading account ( closing stoc! -# Particular 0r 1,,, 1,,, Cr

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$le# Step 15 Identify the &ight Entries 4# 4ordon 6an! 4# 4ordon 3, 6ad 0e$ts &ecovered 4# 4ordon 3,
-

6ad de$ts &ecovered 3,

6an!

3,

Step -5 Identify the 7rong Entries

Advanced-Level

6an! I# 4ordon Step 85 0ate I# 4ordon ( de$tors 4# 4ordon ( de$tors 4# 4ordon - de$tors 6ad 0e$ts &ecovered 3, a!e Appropriate Adjustments Particular

I# 4ordon 6an! 3,

0r 3,

Cr 3,

3, 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# Step 15 Identify the &ight Entries Purchases Purchases /"3,, 6an! Purchases /"3,,

Step -5 Identify the 7rong Entries <ans 6an! Step 85 0ate Purchases <ans Provision for depreciation * vans =overstated> Profit and Loss Account - depreciation 3# /3, /3, /"3,, a!e Appropriate Adjustments Particular 0r /"3,, /"3,, Cr 6an! <ans /"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-# Step 15 Identify the &ight Entries Creditors P# &eturns 1-1 Purchases &eturns Creditors 1-1

Step -5 Identify the 7rong Entries Creditors P# &eturns Step 85 0ate Creditors -1a!e Appropriate Adjustments Particular Purchases &eturns =-1--1-1> 0r .1 .1 Cr Purchases &eturns 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# Step 15 Identify the &ight Entries 0rawings Cash -"?/, Step -5 Identify the 7rong Entries aintenance e)penses &epairs Step 85 0ate 0rawings aintenance e)pense /# -"?/, a!e Appropriate Adjustments Particular 0r -"?/, -"?/, Cr Cash aintenance -"?/, Cash 0rawings -"?/,

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

Step 15 Identify the &ight Entries 0e$tors 6an! 8,, 6an! 0e$tors 8,,

Step 15 Identify the 7rong Entries 0e$tors 6an! Step 85 0ate 0e$tors 6an! 8,, 0e$tors 8,, 6an!

a!e Appropriate Adjustments Particular 0r A,, A,, Cr

E)ample 1wo * A rent prepaid of +1,, was erroneously treated as an accrual and entered as such# Step 15 Identify the &ight Entries &ent 6al $Bd 1,,

Step -5 Identify the 7rong Entries &ent 6al $Bd Step 85 0ate Accruals Prepayments &ent A# 1,,

a!e Appropriate Adjustments Particular 0r 1,, 1,, -,, Cr

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

Step 15 Identify the &ight Entries 0iscount allowed C8/ Step -5 Identify the 7rong Entries 0iscount allowed -8/ Step 85 0ate 0iscounts allowed 0e$tors a!e Appropriate Adjustments Particular 0r 8/ 8/ Cr 0e$tors Sales &eturns -8/ 0e$tors C8/

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# 0ate Stationery Suspense %verstate =Dnderstate> the amount of posting * A purchases of +-,, from from purchases day $oo! as +-,,,# 0ate r# Lam - creditors Suspense Post to the wrong side of the correct account * A return of +8,,, from sales returns day $oo! to the wrong side of his account# 0ate Suspense r# Au ( de$tors Particular 0r A",,, A",,, Particular 0r 1"E,, 1"E,, r# Au posted from Cr Particular 0r 13A 13A r# Lam was posted Cr Cr

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 $oo! was posted to the discount allowed account# 0ate Suspense 0iscounts allowed 0iscounts received -# Errors in casting %vercast =Dndercast> an account * the de$it side of a creditor account was overcast $y +A,# Particular 0r 1"8-, AA, AA, Cr

0ate Suspense Creditors

Particular

0r A,

Cr A,

%vercast =Dndercast> a day $oo! * 1he purchases returns day $oo! was overcast $y +-,,# 0ate Purchases returns Suspense Particular 0r -,, -,, Cr

%vercast =Dndercast> the ending stoc! figure * 1he wor! sheet for the stoc! ta!e at year end was overcast $y +-,,# 0ate 1rading * closing stoc! Stoc! 8# Errors in the carried downB$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# 0ate Insurance Suspense Particular 0r -,, -,, Cr Particular 0r -,, -,, Cr

7hat if the a$ove error was discovered at the year end of last year instead of the end of current yearF 0ate Prepayments - insurance Suspense Particular 0r -,, -,,
?

Cr

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#> 0ate Suspense =/,,)-> &ent Particular 0r 1",,, 1",,, Cr

7hat if the a$ove error was discovered at the year end of last year instead of the end of current yearF 0ate Suspense 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 $alance# 0ate 0e$tors ( 1rial 6alance Suspense Particular 0r 1E/ 1E/ Cr Particular 0r 1",,, /,, /,, Cr

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# 0ate Suspense 6an! overdraft ( 1rial 6alance Particular 0r -,,, -,,, Cr

Advanced-Level

Simple e)ample 1he following is the 1rial $alance of Single Ltd as at 81 arch -,,15 Single Ltd 1rial $alance as at 81 arch -,,1 0r# + Salaries and wages 8 1AE 9i)tures 1, ,,, 6an! A ?., Purchases A- 3,, 0iscount allowed 8,/ Heneral e)penses /./ Stoc! 1- 3., 0e$tors E 1-, 0rawings 3 /-, Sales 0iscount received Creditors Capital 1,E 8EE

Cr# +

E? ,/, 31, / ,3/ 1? ,1? 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? ,/, 0iscount received 31, Creditors / ,3/ Capital 1? ,1?
.

Advanced-Level

Suspense =$#f#> Suspense account 0ifference per trial $alance 1 183

1 183 1,. /-1,. /--

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 Creditors 1"183 1AA I 18,, 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# 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# 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,

0iscounts allowed Sales 9i)tures

1,, 8/, IE/, 1"8,,

-#

8# 3#

/#

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# 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.#

?#

E#

.#

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# 0ate 1 Suspense account 0iscounts received account =+1"-,,)-> Sales 0isposal account 0isposal account LE"1.-B=1-A,;>AM <an Provision for depreciation =-",,,",,,-E1.-> 0isposal account Profit and Loss account * Loss on disposal 0isposal account 8 &ent Suspense account /-1 /-1 8"1.8"1.1"..1"E,E 1"..1"E,E -",,,",,, -",,,",,, /",,, /",,, Particular 0r -"3,, -"3,, Cr

11

Advanced-Level

Creditors Advertising

8",,, 8",,, 1"8/, 1"8/, -",,, -",,, 1"A,, 1"A,, /3,, /3,, A, A, 11, 11, A, A, 8, -? 8 EA EA Statement for revised net profit

1rading aBc Stoc! Sales =-",,,-3,,>BE,; 0e$tors Stoc! 1rading ( closing stoc!

Suspense account 0e$tors =1rial 6alance>

6an! Creditors ( 7hite

Stationery stoc! Stationery Stationery Accruals

Sales account =..A-.A.> Suspense 0e$tors

1,

Sales 0e$tors * A# 6lunt

Get Profit $efore adjustment Add5 0iscounts received understated =1> Advertising overcharged =3> Stoc! held $y an agent on a Jsale or return: $asis =/> Stationery overcharged =E> -"3,, 8",,, 1"A,, 11,

11",,,

?"11, 1E"11,
1-

Advanced-Level

Less5 Cash sales overstated =-> Loss on disposal omitted =-> &ent e)penses understated =8> =-A/C-/A> Stoc! sold $ut not yet delivered =/> Sales overstated =/> Stationery undercharged =E> Sales overstated =.> Cash sales overstated =1,> Get Profit after adjustment Suspense Account + 0iscounts received 0e$tors 0e$tors -"3,, /"3,, 8 ?"E,8 E)ercise one 6alance Sheet of 4 Craig as a 81 0ecem$er 1.)1 9i)tures and fitting Stoc! 0e$tors Cash 6alance $Bd =$#f#> &ent Sales

/",,, 8"1./-1 1"8/, -",,, A, 8, EA 1-"-8. /"E?1

+ ?"-//-1 8, ?"E,8

1,",,, E"A/, 1E"A/, 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

1-"/,, Capital /",,, Get profit for year -"1,, /, 0rawings

Advanced-Level

=i> =ii> =i>

1o provide journal entries necessary to correct the errorsN 1o produce a corrected $alance sheet showing the amended $alance on the suspense account#

0ate a E 4ac!son Suspense $ Suspense Sales =Profit and Loss> c 9i)ture and fitting Purchases d Suspense

Particular

0r 1-A

Cr 1-A

8EA 8EA 81, 81, 3/, 3/, A/ A/ 18,

Profit and Loss * depreciation e 0iscounts received 0iscounts allowed Suspense =ii> Suspense Account Sales =Profit and Loss> Profit and Loss 8EA 3/, 6alance $Bd E 4ac!son 0iscounts allowed 0iscounts received E8A 6alance Sheet of 4 Craig as a 81 0ecem$er 1.)1 9i)ed Assets 9i)tures and fitting =1-/,, C 81,> Current Assets Stoc! 0e$tors =-1,, C 1-A> Cash /",,, -"--A Current Lia$ilities /, Creditors -,",EA Capital 1-"E1, Add5 Get profit for year =EA/, C 8EA C 81, (18, C 3/,> Less5 0rawings

/E, 1-A A/ A/ E8A

1,",,, ."AAA 1."AAA 8".8, 1/"?8A 3"8/, -,",EA

13

Advanced-Level

Statement for revised net profit Get Profit $efore adjustment Add5 Sales undercast Purchases overcast 0epreciation overcast Less5 0iscounts allowed undercast 0iscounts received overcast Get Profit after adjustment 8EA 81, 3/, A/ A/ 18, ."AAA 1"13A ."?.A E"A/,

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"EEStoc! -"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 Provision for dou$tful de$ts 6an! %verdraft Capital Creditors 0e$tors 0iscounts received 0iscounts allowed 0rawings %ffice furniture Provision for depreciation * 9urniture Heneral e)penses Purchases &eturns inwards &ent and &ates Salaries Sales Stoc! Suspense -"31E 1"1?/ -/"/E, -/"/E, E-. 1,".-8 88, 813 -"/-, 1A"EE?88 1"-,, -"1// 8A3 -".E8 -/Cr -,, 1"A/3 3"/.1 1"A8?

=$>
1A

Advanced-Level

0ate =i> 4 4one =creditors> Suspense

Particular

0r -,

Cr -,

1o correct the error of overstate the amount of posting =ii> 9urniture Heneral e)penses 1o correct the error of principle =iii> Purchases Suspense 1o correct the omission of posting =iv> A Pope Ltd =de$tors> Suspense 1o correct the omission of posting =v> Capital =3/.1-3-.1> Suspense 1o correct the $rought down $alance of capital =vi> Sales A 6lunt =de$tors> 1o correct the error of principle =vii> 0iscounts allowed Suspense 1o correct the error of undercasting =c> Suspense Acocunt 1.-? 8,BA 6alance $Bd + 1.-? 1"1?/ 8,BA 4 4ones Purchases A Pope Ltd Capital 0iscounts Allowed 1"1?/ -, 8?, 3/, 8,, 8/ 1"1?/ 8/ 8/ EA EA 8,, 8,, 3/, 3/, 8?, 8?, 1?8 1?8

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 A,",,, 81",,, Provision for depreciation 8/",,, %rdinary share capital 1-",,, &etained earnings Stoc! in trade" at cost 13",,, Sales ledger control account ."A,, A"/,, Purchases ledger control account 6alance at $an! 1"A3, ?3, 0ifference on $alances suspense account 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

0ate =a> Profit and Loss * &ent Sales Ledger Control

Particular

0r 8/,

Cr 8/,

1o correct the error of principle =$> Purchases Ledger Control Sales Ledger Control 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 6an! 1o correct the error of omission =e> Profit and Loss * Purchases Purchases Ledger Control 1o correct the error of under casting =f> Profit and Loss * Purchases Purchases Ledger Control 1o correct the error of principle =g> 6an! Profit and Loss * Sales 1o correct the error of omission =h> Profit and Loss * 6an! Charges 6an! 1o correct the error of omission =i> Suspense 6an! 1o correct the error of over casting 0ate =j> 9i)ture and fitting 6an! Particular 0r E"A3, E"A3,
1.

1"/A, 1"/A,

/,, /,,

-"A-, -"A-,

8,, 8,,

1",,, 1",,,

-"3/, -"3/,

.1, .1,

1".,, 1".,, Cr

Advanced-Level

1o correct the errors of omission =!> Profit and Loss * Stationery Suspense 1o correct the error of omission of posting 1"3A, 1"3A,

List of $alance as at 8,-3-1.O, 9i)ed Assets5 at cost 9i)ed Assets5 provision for depreciation %rdinary share capital &etained earnings Stoc! in trade" at cost Sales ledger control Purchases ledger control 6alance at $an! =%B0> Suspense .-"3/, 13",,, ."E1, A"-3, .".E, 8,, .-"3/, AE"A3, 81",,, 8/",,, .".8,

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# 0epreciation of furniture and fittings of +1"33, had $een overloo!ed# 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 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#
-,

8# 3# /#

A#

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> 0ate 1 otor van Profit and Loss * Purchases 1o correct the error of principle Profit and Loss * 0epreciation Provision for depreciation ( motor van 1o correct the error of omission Profit and Loss * Sales Provision for depreciation Profit and Loss * Loss on disposal otor van 1o correct the error of principle and omission 8 Profit and Loss * depreciation Provision for depreciation 1o correct the error of omission 3 Profit and Loss * 0iscounts Allowed Profit and Loss * 0iscounts &eceived Suspense 1o correct the error of the wrong side of a wrong account -3 -3 3E 1"33, 1"33, 8"A,, 1"-3/ /// /"3,, /3, /3, Particular 0r /"3,, /"3,, Cr

0ate / Suspense 0e$tors

Particular

0r 8A,

Cr 8A,

1o correct the error of omission of positng

-1

Advanced-Level

I Hiles - de$tors 4 Hillies - de$tors 1o correct the error of commission 4 Hillies - de$tors Profit and Loss * 6ad 0e$ts &ecovered 1o enter the $ad de$ts recovered#

3, 3,

3, 3,

Stoc! 1rading * Closing stoc! 1o correct the error of omission Profit and Loss * Sales 0e$tors 1o correct the error of omission

1A, 1A,

-,, -,,

=$> Suspense Account 0e$tors 8A, 6alance $Bd =6alancing fig#> 0iscounts allowed 0iscount received 8A, 81-3 -3 8A,

=c> Statement showing the adjustment to net profit Items added to the net profit Purchases overstated 6ad de$ts recovered Closing stoc! understated Less5 Items deducted from net profit Sales overstated Loss on disposal 0iscounts allowed understated 0iscounts received overstated 0epreciation of furniture and fitting understated 0epreciation of motor van understated Sales overstated 8"A,, /// -3 -3 1"33, /3, -,, A"8E8
--

+ /"3,, 3, 1A,

/"A,,

Advanced-Level

1he decrease in net profit 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$er 1.-1 + + 9i)ed assets =at cost less depreciation> Premises A",,, <ehicles 1",., E2uipment and tools -"3E, Current assets Stoc! 0e$otrs Less5 provision for $ad de$ts Prepayments 6an! and cash + Capital accounts 7yre Polmes ."/?, 3"/-A -"88 . -88 -"1,A Current lia$ilities Creditors Accruals Current accounts 7yre =credit> Polmes =de$it> A31 38+ ?",,, ?",,,

=?E8>

13",,,

-,.

133 1".3,

E"?1A 1E"-EA

-"/,E II1-E

-"A8A 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$se2uently disclosed that5 =i> =ii> =iii> =iv> =v> 1he purchase returns day$oo! had $een correctly entered and totaled at +A1A $ut had not $een posted to the ledgers# 0iscounts received" +18-" had $een de$ited to discounts allowed# 1he sales account had $een under-added $y +1",,,# A credit sale of +13? had $een de$ited to a customer:s account as +1?3# 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

=vi> =vii> =viii> =i)> =)> =)i> =)ii>

passed through the $oo!s# An accrual of +/A for telephone charges had $een completely omitted# 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# 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# 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,,# 1ools $ought for +1-, had $een inadvertently de$ited to purchases# 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 0ate =i> Creditors Purchases returns =ii> Suspense 0iscounts allowed 0iscounts received =iii> Suspense 1rading * sales =iv> Suspense 0e$tors =v> Suspense Provision for depreciation =?,,)-,;)3yr#> Profit and Loss ( profit on disposal <ehicles =vi> 1elephone /A
-3

Particular

0r A1A

Cr A1A

-A3 18181",,, 1",,, -? -? 1/, /A, 1, ?,,

Advanced-Level

Accruals ( telephone =vii> Current ( Polmes Current ( 7yre %& Current - 7yre Current ( Polmes Current - 7yre Current ( Polmes =viii> 6ad de$ts 0e$tors Provision for $ad de$ts -88-=-"88.-1/---?>)1,; Profit and Loss =i)> Current ( 7yre Current ( Polmes =)> 1rading * Closing stoc! Stoc! =)i> 1ools Purchases =)ii> 0rawing * Polmes Purchases 1.A 1-, // E,, 1? 1/8/, 8/, ?,

/A

?,

3-, -E,

1/-

1?

E,,

//

1-,

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 0iscounts allowed overstated Sales understated Profit on disposal 0ecrease in provision for $ad de$ts Purchases overstated Purchases overstated Purchases returns understated + 18181",,, 1, 1? 1-, 1.A A1A -"--8
-/

Advanced-Level

Less5 Items deducted from net profit Electricity understated Closing stoc! overstated 6ad de$ts understated Increase in net profit Share of net profit5 7yre S +1".A, ) 8B/ S +1"1?A Polmes S +1".A, ) -B/ S +?E3 =$> 6alance Sheet as at 81-1--1.-1 9i)ed Assets Premises <ehicles =1",., ( ?,, C /A,> E2uipment and tools =-"3E,C1-,> Current Assets Stoc! =3"/-A-//> 0e$tors =-"88.-1/---?> Less5 Provision for $ad de$ts Prepayments 6an! T Cash 3"3?1 -"1A, =-1A> 133 1".3, Current Lia$ilities E"3.. Creditors =-"/,E-A1A> Accruals =1-EC/A> 1E",3. 1"E.1E3 -",?A 1E",3. + A",,, ./, -"A,, ."//, Current account 7yre =A31-E,,C?,C1"1?A> Polmes =-38--?,CE,,-1.AC?E3> 1",E? EEA 1".?8 + Capital 7yre Polmes + ?",,, ?",,, 13",,, + /A // 1/-A8 1".A,

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# -# 8# 3# /# &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# 1he sales day$oo! had $een under-added $y +/,,# 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# ?# E#

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# 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" $efore the errors were corrected" was5 0iscounts allowed 0iscount received Purchases Purchases returns Sales Sales returns Carriage outwards 7ages and salaries Stoc! =opening> Peating and lighting &ent" rates and insurance Heneral e)penses 6uildings achinery 0e$tors Creditors 6an! and cash Capital =opening> Suspense =difference> 13- .1/ 0r 8-, 31 ?,, A,, ?- 8,, 1 /,, 3 18, -8 /,, 1. -,, ? E,, / A,, A 1,, 1, ,,, . 88, E ,/. 3 .?/ A?A 13- .1/ A3 3-, 13- ?,-18 13- .1/ Cr 31,

&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 0ate 1 &ates Suspense Particular 0r -3, -3,
-?

Cr

Advanced-Level

achinery Purchases

1"1,, 1"1,, /,, /,, 3,, 3,, 8A 8A . . A, A, 3, 3,

Suspense Sales

Sales achinery

Creditors =/1-1/> Suspense

Suspense 0e$tors

0e$tors ( 1rial 6alance Suspense

Suspense 0e$tors

=a> 1rial 6alance as at the end of the financial year 0r 0iscounts allowed 0iscounts received Purchases Purchases returns Sales Sales returns Carriage outwards 7ages T salaries %pening stoc! Peating T lighting &ent" rates and insurance Heneral e)penses 1"/,, 3"18, -8"/,, 1."-,, ?"E,, /"E3, A"1,,
-E

Cr 8-, 31,

3,"A,, A,, ?-"3,,

Advanced-Level

6uildings achinery 0e$tors Creditors 6an! T cash Capital =opening>

1,",,, 1,",8, E",?, 3".8A /"A?A IIIIIII IIA3"3-, 13-"?AA 13-"?AA

=$> Effects on the net profit Items added to the net profit Purchases overstated Sales understated Less5 Items deducted from the net profit &ates understated Sales overstated Get increase in net profit -3, 3,, A3, .A, + 1"1,, /,, 1"A,, +

=c> Suspense Account + Sales 0e$tor ( discounts allowed 0e$tor ( discounts received /,, 6alance $Bd . &ates 3, Creditors 0e$tor /3. + -18 -3, 8A A, /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

=iv>

=v> =vi> =vii>

sold for +1,, $ut no entries had $een made e)cept to record the receipt of the proceeds in the $an! account# 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# Go entry had $een made for goods withdrawn $y 7ilmot for personal consumption" +-1,# 0iscounts allowed +., had $een credited to discounts received# 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 0ate =i> Sales Suspense =ii> 0ate =iii> Suspense Provision for depreciation %ffice furniture Profit and Loss Account * profit on disposal =iv> %ffice e2uipment Purchases Profit and Loss Account * depreciation Provision for depreciation =v> 0rawings Purchases =vi> 0iscounts allowed 0iscounts received Suspense ., ., 1E,
8,

Particular

0r ?8,

Cr ?8,

Suspense Creditors =3/,C/3,> Particular

.., .., 0r 1,, -?, 8,, ?, /,, /,, 1,, 1,, -1, -1, Cr

Advanced-Level

=vii>

Prepayments * insurance Profit and Loss * power e)pense Accruals * power Profit and Loss * insurance

., -8 -8 .,

=a> Statement to correct the net profit + Adjustments for net profit Add5 Profit on disposal * 9urniture Purchases overstated ( wrong de$it to purchases Purchases overstated ( unrecorded drawing of goods %verstated insurance e)pense Less5 Sales overstated Provision for deprecation ( e2uipment Adjustments for discounts allowed T received Accruals omitted ( understated power ?, /,, -1, ., ?8, 1,, 1E, -8 1",88 A"?11 =a> Statement of correcting the capital employed + %riginal capital employed at year end Less5 0ecrease in net profit 0rawing Adjusted capital employed at year end 1A8 -1, 8?8 -A"AE, + -?",/8 E?, ?"?33 + A"E?3

=$> Suspense Account + Creditors 0isposal of office e2uipment .., 1,, 6alance $Bd =$#f#> Sales 0iscounts received 0iscounts allowed + 1E, ?8, ., .,
81

Advanced-Level

1",.,

1",.,

8-