CHAPTER 1 : CORRECTION OF ERRORS.

1.1 : Errors not affecting trial balance

1. In accounting,there is two type of errors, there are:

a.) Errors not affect trial balance.
b.) Errors does affect trial balance. (Suspense account)

2. There are few types errors doesn’t affect trial balance.

ERROR TYPES DESCRIPTION
1. Errors of omission a.) Transaction that completely omitted from the books.

Example : ABC Enterprise sold RM 100 goods to Mr A, but did not

enter the sales record into the account.
2. Error of commission a.) Transaction has been recorded in the wrong account.

Example : Rates expenses RM 900 has been debited into rent account.
3. Errors of principle a.) An item is entered in the wrong class of account.

Example : RM 200 of vehicle expenses has wrongly debited into

Vehicle account (asset).
4. Compensating error a.) Where errors cancel each other out.

Example : A sales and purchases amount has been overstated or

understate from original amount.
5. Errors of original entry a.) Errors where the original amount is incorrect.

Example : ABC Enterprise bought goods from Abuya Enterprise

RM 1,670 but recorded in account as RM 1,760.
6. Reversal of entries a.) Correct amount and double entry but wrong side of account.

Example : Cash sales RM 200 has been debited in sales account and
credited in cash account.

Example 1
SUASANA ENTERPRISE TRIAL BALANCE (extract)
As at 31 January 2016
DR CR
Advertising 3200
Purchase 38,200
Salary 10,420
Repair van 820
Ramasamy 30
Tamasamy 620
Van 20,800
Motor Vehicle 18,780
Bank 28,000
Sundry 210
Cash 4380
Haziq 230
Sales 78,440
Capital 120,500
Above is extract trial balance from Suasana Enterprise as at 31 January 2016. There a few errors was
found.
a.) Advertising expenses of RM 220 were recorded in the salary account.
b.) Purchase of goods worth RM 2,550 was recorded as purchase of motor vehicle.
c.) Repairs van amount to RM 750 was debited to Van account.
d.) Credit sales from Ramasamy Enterprise worth RM540 was wrongly credited as purchase of
goods from Tamasamy Enterprise.
e.) Cheque for RM 230 received from Haziq was debited to Haziq’s account and credited to
Bank account.
f.) Sundry expenses RM 150 was ommited from the cash book.
g.) Purchase of goods for RM 250 was wrongly recorded as RM 205.
h.) RM 100 sales has been wrongly recorded into salary account.

Required

i.) Prepare extract trial balance after correction of erros

1.2 : Errors that affected trial balance and Suspenses Account

1. A suspense account is an account in the general ledger that temporarily stores any transactions for
which there is uncertainty about the account in which they should be recorded.

2. Suspense account must be clear before the company prepare the financial statement. Therefore,the
suspense account should be clear from the trial balance

Example 1 (Suspense account with one error)

Sunshine Trading trial balance at 31st March 2016 had a difference of RM 168. It was shortage
on the debit side. The errors was found that they had made a payment to Khloe. It was
correctly recorded in the cash book but was not entered in Khloe account.

Example 2 (Suspense account with multiple error)

Sunshine Trading trial balance at 31st May 2016 showed a difference of RM 77, being shortage on the
debit side. All the errors has been found

i.) A cheque of RM 150 has been paid to Ken had been correctly entered in the cash book, but had not
been entered in Kenn’s account.
ii.) The purchase had been undercast by RM 20.
iii.) A cheque of RM 93 received from KiKi Trading has been entered in Cash book but didn’t
recorded in KiKi Trading account.

Required:-
a.)Make correcting entries for i-iii
b.) Record double entry for all transactions in the suspense account.
Exercise 1

1. The new book keeper of SHIELD Trading prepared the following trial balance as at 31 March 2015
which was found to be out of balance.

DR CR
Cash 4,000
Bank overdraft 5,000
Debtors 25,000
Creditors 40,000
Capital 250,000
Drawings 6,000
Sales 650,000
Purchases 340,000
Stock 24,000
Salary 90,000
Advertising 8,000
Insurance 12,000
Motor van 54,000
Land and Building 350,000
Equipment 38,000
Stationery Expenses 1,000
Motor van repairs 3,000
Bank loan 80,000
Investments 70,000
1,016,000 1,034,000

An examination of the ledger account showed that the following had been made :
a) Drawings made were in cash for RM 6,500 but the drawings account was under-recorded by
RM 500
b) Motor van repairs of RM 1,000 was incorrectly recorded in the Motor Van account.
c) Creditors were understated by RM 500 when purchases of RM 4,000 was made, although the
record in the purchases account was correctly made.
d) Invoice from creditor wasn’t record in the account worth RM 1,200
Prepare a proper corrected trial balance for SHIELD Trading as at 31 March 2015.

2. AOP Partnership extracted a trial balance on 31 December 2016 which failed to agree RM 210,a
shortage on the credit side of the trial balance. A suspense account was opened for the difference. In
January 2017 the following errors made in December 2016 were found:
a) Sales day book has been undercast by RM 20
b) Sales of RM 610 to DX Network had been debited in error to DM’s account.
c) Rent accout had been undercast by RM 90
d) Discount allowed account had been overcast by RM 100
e) The sale of computer at net book value had been credited in error to the sales account RM
230.

Show the relevant journal to correct the errors and draw up suspense account after the errors
has been corrected.