CH6 - Control Account & Correction Of Errors Flashcards
Reasons for having control account?
1) they provide a check on the ACCURACY of entries made in the personal accounts.
2) they assist in the LOCATION OF ERRORS, where postings to the control accounts are made daily, weekly or even monthly.
3) Where there is a separation of clerical duties, they provide an INTERNAL CHECK.
4) they provide a TOTAL BALANCE, which can be extracted more QUICKLY & SIMPLY than many individual balances in the receivables / payables ledger.
Suspense account ?
1) when the error breaks the rule of double entry.
2) used to correct some error.
3) open when it is not know immediately where to post an amount.
4) when the mystery is solve, the suspense account is closed the amount correctly posted using a journal entry
Reason for maintaining control acount?
1) to simplify the preparation of final accounts,
2) to check the accuracy of posting.
3) to assist in locating errors in posting.
Tony made one error when he posted the total value of invoices from the purchase daybook to the general ledger. He posted $274,865 to yhe debit side of the purchases account. The correct total was $274,685.
How is the trial balances affected by this error?
Overstated by 180
Correction,
Dr suspense 180
Cr Purchase 180
Total of Debit balances will Exceed total of Credit balances.
When Nicola extracted her trial balance, the total of debit balances exceeded the total of the credit balances by $1,000. She opened a suspense account to make the two totals equal. She then discovered that an invoice received for property repairs for $1,500 was entered as $500 on the credit side of the property repairs account.
What is the revised balance on the suspense account when Nicola corrects this error?
Trial balance, Dr > Cr by 1000
Suspence acc b/d on Credit side.
Amount Understated by 1000
Correct the double entry first, then the amount error,
Dr Property repairs 1000 + 1000
Cr Suspense 1000 + 1000
Double the amount
Which is correct ?
1) a separate suspense account should be opened for each error in the ledgers.
2) a suspense account is sometimes opened to complete postings while more information is sought on a transaction.
Statement 1 not correct
Statement 2 correct
The total of debit balances was $450 less than the total of the credit balances so a suspense account was opened.
Dr < Cr by 450
Balance b/d in suspense account at the debit side.
Error made by the bank.
Correcting in bank statement.
Bank statement reconcile
Kalau balance in credit positive
Kalau debit negative
Purpose of bank reconciliation
To identify entries put through by the bank but not recorded in the cash book, and to identify errors in the entries in the cash book.
The reconciliation simply confirms that the same amounts have been posted to the list of balances and the control account.
It cannot confirm that all of those amounts were correct, or that other amounts were not omitted from both.
Therefore it cannot confirm the correctness of the control account or of any individual supplier’s balance.
A suspense account was opened as Debit more than credit by 400
Balance b/d at suspense account at credit
