6 - Errors and corrections to accounting records

Question 1

What are the most common documents used to reconcile?

Answer 1

Supplier statements
Customer statements
Bank statements

Question 2

What are the required journal entries for certain adjustments?

Answer 2

Sales returns:
Normally Dr Trade receivables and Cr sales
Now it is Dr sales returns and Cr Trade rec

Purchase returns:
Normally Dr Purchases Cr Trade payables
Now Dr Trade payables and Cr purchase returns

Contra:
Normally Dr Trade rec and Cr Trade payables
Now Dr Trade payable and Cr Trade rec

Irrecoverable debts:
Dr IDE and Cr Trade receivables

Refund to customers:
Dr Trade rec Cr Cash

Refund from suppliers:
Dr Cash Cr Trade payables

Dishonoured cheque:
Dr Trade rec Cr cash

With refunds, ALWAYS FO LLOW THE CASH

Question 3

Where do transactions that can’t be matched go?

Answer 3

They are posted to a suspense account and are highlighted in an exception report

Question 4

Difference between bank statement and cash at bank account

Answer 4

They are mirror images
Money received is credited by the bank and debited by the business as the bank now owed this money back to the business

Question 5

Bank recons

Answer 5

Unrecorded bank interest or charges - T account correction required

Automated payments and receipts - T account correction required

Dishonoured cheques - T account correction required

Timing differences (unpresented cheques and uncleared lodgements or electronic transfers that have not yet cleared) - Item included in bank recon statement

Question 6

Types of errors in accounting

Answer 6

Transposition errors - when 2 digits are accidentally recorded the wrong way around

Omission errors - failing to record a transaction at all

Errors of principle - an accounting entry that breaks the “rules” of an accounting concept (for example capex vs revex)

Errors of commission - an accounting entry into the wrong account but of the correct nature (recording a telephone expense as an electricity expense)

Compensating errors - errors which are coincidentally equal and opposite to each other

Question 7

What is a good correcting errors technique?

Answer 7

Did, should have and correcting journal

Question 8

What is a suspense account?

Answer 8

It is a temporary account used when the computerised accounting system or the book keeper is unsure how to record one side of a transaction

Once the issue has been resolved and the correct account identified, the suspense account should be cleared using a correcting journal.

Suspense accounts should NEVER appear in the final account.