A suspense account is thus an account to which the deference in the trial balance is posted temporarily pending the identification of the cause of the error. The suspense account is debited if the total of the credit side of the trial balance exceeds the debit side, while the suspense account is credited if the total of the debit side of the trial balance exceeds the credit side. On locating error in the beginning or during the course of the subsequent accounting period, suitable accounting entries are made to rectify it.
Note: errors of any type should be corrected through the medium of the journal . it is not good suspect the recorder. Therefore, when an error is discovered, an additional entry is made to cancel the error. An explanation of such entry is made so that when checking again, no problem will be encountered. Note that those errors which did not affect the trial balance will be corrected by additional entries
Illustrations
Below is the list of transaction of ngwoke as at 31st December, 1999
v – goods sold for N100 to A. Adamu was wrongly posted to the debit side of B.A Adams account
v cash sales N50 was credited to the purchases A/C
v purchased of an office typewriter N1,200 was posted to the debit side of purchases account
v drawings in form of goods costing N800 has not being recorded anywhere in the books
v a credit not for N620 issued to a debtor was entered in the returns forward book as N260 and was posted to the ledger accordingly
v a cheque for N719 issued to a creditor was entered in the cash book as N791
v an invoice for N280 issued to a customer was entered as N820 in the slaes day book
v a cheque for N320 issued for carriage o sales was debited to carriage inwards account.
Required to:
Rectify the above errors by means of journal
Solution:
Correction of error
Journal
|
Particulars |
Debit N |
Credit N |
|
A.Adam’s account |
100 |
|
|
B. adam’s account |
100 |
|
|
Being correction of error of wrong posting |
||
|
Purchases account |
50 |
|
|
Sakes account |
50 |
|
|
Being correction of error of wrong posting |
||
|
Office equipment account |
1200 |
|
|
Purchases account |
1200 |
|
|
Being correction of error of wrong posting |
||
|
Drawings |
800 |
|
|
Purchases |
800 |
|
|
Being correction of error of wrong posting |
||
|
Debtors |
360 |
|
|
Sundry debtors |
360 |
|
|
Being correction of error of wrong posting |
||
|
Bank account |
72 |
|
|
Creditors account |
72 |
|
|
Being correction of error of wrong posting |
||
|
Sales account |
540 |
|
|
Sundry debtors account |
540 |
|
|
Being correction of error of wrong posting |
||
|
Carriage outwards account |
320 |
|
|
Carriage inwards account |
320 |
|
|
Being correction of error of wrong posting |
Practice to erase, delete or over write figures and substitute the correct ones in the books of account. The need to correct errors through the use fo journal crises in order to minimize the incidence of fraud and it also helps to keep the cooks clean and tidy. Illustration: a trial balance extracted from the books of S.oji & Co at the end of the month did not agree. The total of the debit column of the trial balance exceeded that on the credit side by N598. A suspense account was opened and this difference was credited to it. The sources of the discrepancy were later traced to the following errors.
a. The debit balance on A. Jide’s accounts in the sales ledger was incorrectly calculated as N695 instead of N695 instead of n659.
b. a return outward of N390 was correctly posted to d Johnson’s account in the purchases ledger, but was not posted to the returns outwards account.
c. A bank over draft of N152 which was shown in the cash book was omitted from the trial balance
d. A discount received of N10 was posted to the wrong side of the discount received account
e. A sale invoice for N385 in the name of K apiaji was accidentally filed with his order and , so, was completely omitted from the books
You are required to :
i. correct this errors through the medium of a journal
ii. write up the suspense account
suggested solution
i. JOURNAL
|
Particulars |
folio |
Debit N |
Credit N |
|
A. Suspense Account |
36 |
||
|
A. Jide |
36 |
||
|
Being correction of A Jides balance in the sales ledger which was incorrectly calculated as N695 instead of N659. |
|||
|
B. Suspense account |
390 |
||
|
Returns outwards |
390 |
||
|
Being return outwards not posted to the returns outwards account but correctly debited to D. Johnson’s account in the purchases ledger |
|||
|
C suspense account |
20 |
||
|
Discount received |
20 |
||
|
Being N10 discount received posted to the wrong side of the discount |
|||
|
D. k. Apiaji |
385 |
||
|
Sales |
385 |
||
|
Being invoice earlier omitted in the book |
20 |
Dr suspense account cr
|
Particulars |
Amount N |
Particulars |
Amount N |
|
A. JIDE |
36 |
Balance |
598 |
|
RETURNS OUTWARD |
390 |
||
|
Bank overdraft |
152 |
||
|
Discount received |
20 |
||
|
598 |
598 |
Correction of errors
When errors are discovered, it must be crossed out where it was not done, it is against accounting profession. If an auditor or external person sees it, he or she will .
Illustrations :
The following is the summary of the trial balance of Ezenwa & co AS AT 31ST Dec, 2011
Debit credit
Total of all accounts 1661 1120
N1661 1120
The following errors were also discovered
v good worth of N300 bought for Tanu & co was wrongly posted to the debit side of his account .
v The discount allowed account is higher by N100
v Discount received N100 was entered in the ah book only
v Sales of N89 correctly debited to the debtors account but wrong credited to the sales account as N98.
v the total of N50 in the discount column on the credit side of the cash book has not been posted
Required:
i. to slow the journal entries to correct the errors
ii. write up the suspense account
solutions: journal
|
Particulars |
Debit N |
Debit N |
|
Suspense account |
300 |
|
|
Tanu & Co |
300 |
|
|
To record the transaction correctly |
||
|
Suspense account |
100 |
|
|
Discount allowed account |
100 |
|
|
Being correction of error of over cash |
||
|
Suspense account |
100 |
|
|
Divident |
100 |
|
|
Being correction of error of incomplete record |
||
|
Sales account |
9 |
|
|
To recorded the correction of error of transposition |
9 |
|
|
Suspense account |
||
|
Discount allowed |
50 |
|
|
Being correction of error of omission |
50 |
Revision questions
1. define accounting and state its functions
2. how does accounting differ from book – keeping
3. what are subsidiary books . List types of subsidiary books used by businesses.
4. why is it necessary to classify journal into various categories
5. distinguish between the special journal and the journal proper. (b) out line the specific uses of the journal proper.
6. Enter the following transactions in the cash book of Emeka Ugbanu as at 1st March, 1999 who commenced business with the sum of N500,000 only
2/3/1999 – cash sales to date N100,000
4 “ – purchased goods for cash N50,000
8 “ paid rent N5000
10 “- paid insurance in cash 500
11 “ – Nwele paid on the account 2,500
15 “- paid for advertisement 600
18 “ – paid for stationary in cash 300
20 “- cash sales to date 30,000
23 “- purchased furniture for cash 32,000
25 “- paid for postage & stationery in cash 430
28 “- paid wages and salaries 5000
30 “- paid izzo 2,000
B. why is the cash book regarded as the most important book of prime and final entry?
7. enter the following transactions in the double column cash book of Idembia for the month of April 2009. and show the balances
April balance b/f 50, 000
|
April 1 |
Bank |
80,000 |
|
2 |
Purchases(cash) |
20,000 |
|
3 |
Cash sales |
40,000 |
|
6 |
PHCN bill paid by cheque |
10,000 |
|
7 |
Cash sales paid into bank |
40,000 |
|
10 |
Withdraw cash from bank for office use |
28,000 |
|
15 |
Cash sales to date |
20,000 |
|
16 |
Paid Eze by Cheque |
2,000 |
|
20 |
Paid cash into bank |
20,00 |
|
20 |
Received cheque from ek$ndiegu |
30,000 |
|
22 |
Bought office furniture for cash |
10,000 |
|
23 |
Paid for telephone by cheque |
1,000 |
|
24 |
Cash sales to date |
40,000 |
|
28 |
Cash sales paid into bank |
35,000 |
|
31 |
Paid wages & salaries |
13,000 |
|
7b |
What is a contra entry? |
|
|
8b |
Explain the followings |
|
|
i. |
Petty cash book |
|
|
ii |
Imprest system |
|
|
iii |
Float |
8b. the following relate to the business of Ezaka for the month of July, 2007
|
July 1 |
Imprest cash received from the main cashier |
N 20,000 |
|
July 2 |
Typing papers |
500 |
|
July 5 |
Office cleaning |
1,000 |
|
July 8 |
Postage & stamps |
100 |
|
July 11 |
Fuel for office van |
1,500 |
|
July 15 |
Photocopying of documents |
200 |
|
July 18 |
Telephone charges |
800 |
|
July 19 |
Office clearing |
600 |
|
July 21 |
I.O.U to Obasi |
1,000 |
|
July 24 |
Envelops |
160 |
|
July 26 fuel |
Fuel |
1000 |
|
July 28 |
Paid odom n |
800 |
|
July 29 |
Stationeries |
1000 |
|
July 31 |
Telephone charges |
200 |
a. To record the above transactions in the petty cash book (maintained on the imprest system ) for the month of July, 2002
b. Post the items to the ledger, and
c. Abstract a trial balance
9. Briefly explain the following types of ledger account (a) personal accounts (b) real accounts (c) nominal account
10. What do you understand by (a) posting (B) Double entry principle (C) account balancing
10 b) enumerate the objective of preparing a trial balance
11. enter the following transactions in the three column cash book of a Njoku, post to the ledger and extract a trail balance
|
April 1 |
Cash in hand |
28,000 |
|
Cash at hand |
46,000 |
|
|
April 6 |
Purchase made in cash |
15,000 |
|
April 8 |
Paid insurance by cheuqe |
38,000 |
|
April 10 |
Received from amrar a |
1,850 |
|
April 12 |
Bought goods & paid by cheque |
29,531 |
|
Discount received |
1,000 |
|
|
April 15 |
Paid cash into bank |
16,000 |
|
April 17 |
Cash sales to date |
35,000 |
|
April 18 |
Received N9550 cash in full settlement of debt N10,000 from Ekechi |
|
|
April 21 |
paid Nwokoha by cheque |
8000 |
|
April 23 |
cash purchases |
21,000 |
|
April 29 |
Withdrew cash from bank for office use |
18,000 |
|
April 30 |
Paid wages N14,000. and sundry expenses N1500 |
NO 12 below is the list of transactions from Ifeoma Boniface business as at 31st December, 1999
v Goods sold for N100 to S. Njoku was wrongly posted to the debit side of B Njokus accounts
v cash sales N50 was wrongly credited to the purchase A/c
v purchased of an office typewriter N1200 was posted to the debit side of purchases account
v drawings inform of goods costing N800 ha not being recorded anywhere in the books
v a credit note for N620 issued to a debtor was entered in the returns inwards book as N260 and was posted to the ledger accordingly
v a cheque for N719 issued to a creditor was entered in the cash book as N791
v an invoice of N280 issued to a customer was entered as N820 in the sales book
v a cheque for N320 issued for carriage on sales was debited to carriage inwards accounts .
Required:
to rectify the above errors by means of journal (narration is necessary?
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