6: Errors and corrections to accounting records and financial statements

Question 1

What is a contra?

Answer 1

If a business has a supplier who is also a customer, the recievable and payable is offset against each other and the difference settled as usual.

Question 2

How to record customer return goods?

Answer 2

Negative sale e.g. Dr Sales returns, Cr Trade recievables. Leaving customer in net credit in trade recievables, therefore after refund: Dr trade recievables, Cr cash

Question 3

What is a suspense account?

Answer 3

Temporary account where transactions cannot be matched are sent to.

Question 4

What are the 5 types of accounting errors?

Answer 4

Transposition errors
Omission errors
Errors of principle
Errors of commission
Compensating errors

Question 5

What is a transposition error?

Answer 5

when two digits are accidentally recorded the wrong way around

Question 6

Omission errors

Answer 6

failing to record a transaction at all

Question 7

Errors of principle

Answer 7

an accounting entry that breaks the “rules” of an accounting principle or concept, eg incorrectly classifying capital vs revenue expenditure

Question 8

Errors of comission

Answer 8

an accounting entry into the wrong account but of the correct nature, eg recording a telephone expense as an electricity expense

Question 9

Compensating errors

Answer 9

errors which are, coincidentally, equal and opposite to each other