UNIVERSITY OF TECHNOLOGY, JAMAICA

SCHOOL OF BUSINESS ADMINISTRATION

FUNDAMENTALS OF ACCOUNTING
ERRORS AND SUSPENSE ACCOUNTS

DETECTION OF ERRORS

The process of recording transactions and extracting a trial balance and the set of final accounts
is not error free. Errors are likely to occur at different stages in the accounting process. These
may be of two broad categories

a. Those not affecting the trail balance

b. Those affecting the trial balance

ERRORS NOT AFFECTING THE TRIAL BALANCE

One of the purposes of the trial balance is to check the arithmetical accuracy in the posting of the
transactions. Thus, the total debit should correspond with the total credit.

However, there are several errors that may have occurred, that would not affect the harmony of
the trial balance. Thus, these are not easily detected and are usually ascertained from a careful
check of the records, or by means of some other situational factors. Among these errors are:

a. Omissions: a complete transaction may have been omitted from the books

b. Commission: a transaction may have been recorded in the wrong account in a particular class.
e.g. payment from L. Davis may have been posted to L. Davidson, or purchase of equipment
posted as fixtures and fittings

c. Principle: this involves the posting of a transaction to a wrong class of accounts. E.g. Payment
for motor repairs (expense) recorded in the motor vehicle account (asset).

d. Original Entry: a wrong figure amount may have been used when posting a transaction,
albeit to the correct accounts. E.g. Goods sold for $150 may have been posted as $105 to both
cash and sales account.

e. Reversal of entries: a transaction may have been posted to the wrong sides of the accounts
involved. E.g. payment of $100 cash to B. Witter may have been posted as Dr. in Cash and Cr. In
B. Witter

f. Compensation: a number of unrelated errors may have occurred while posting the
transactions. These errors may balance out or compensate each other
ERRORS AFFECTING THE TRIAL BALANCE

There are certain errors which will indeed prevent the trial balance from balancing. Where the
totals of the trial balance do not agree the difference should be placed in a Suspense Account. If
the debit side of the trial balance is shirt, the difference should be placed on the debit side of the
suspense account and if the credit side is short then the difference should be credited to the
suspense account.

Having placed a difference in the suspense account however, the error must be located and
corrected in order to eliminate the balance on the suspense account.

There are some errors that would easily come to the fore, due to the fact that the trial balance
would not balance. These errors generally occur due to:

a. Incorrect additions in the accounts

b. Where only half a transaction has been recorded (single entry). For example, if the debit
entry is made, but not the credit, or vice versa
c. Where the correct figure is used for one entry, but an incorrect for the other. For
example, a debit entry of $69 and a credit of $96 for the same transaction.
d. Where two debit (or credit) entries have been made instead of a debit and a credit.
e. Incorrect transfer of figures to the trial balance

Aside from a review of the source documents, these errors may be detected when the trial
balance is being drawn up as it will not balance.

These errors will have the trial balance not balancing and as such these errors should be
corrected via the suspense account.
Lecture Question

Plato Ltd Trial Balance as at 31st October 2009 was balanced by the inclusion of the following
debit balance of $5,599 in the Suspense Account.

Subsequent investigation revealed the following errors:

1) Opening Inventory was understated by $5,500

2) A trade credit of $1,850 received from John Browning in November 2008 has been
posted to the credit of John Brown.

3) In recording discount allowed of $1,750 in September 2009, Plato debited of the

Discount received account and credited accounts receivable.

4) In preparing the Trial Balance, Plato omitted completely an invoice amounting to $6,700
for insurance.

5) A payment of $978 to Half Moon Hotel in May 2009 has been posted correctly in the
Cash Book but as $879 in the accounts payable.

Required:

a) Prepare the journal entries of each transaction to correct each error. ( narratives are not
necessary)

b) Prepare the Suspense Account.

c) Explain the types of error that is committed in statements (2) and (5).