Chapter 12 Flashcards
What are the two errors categories?
errors when trail balance still balances
errors when suspense account is created without which train balance would not balance
error of omission
a transaction has been completely omitted from the accounting records
error of commission
a transaction has been recorded in wrong account but in the right financial statement
eg. motor expenses recorded as stationary
error of principle
a transaction has been conceptually been recorded incorrectly
eg. debited as an expense rather than an asset
compensating error
errors which are coincidently equal and opposite to each other
transposition error
the correct double entry has been made but two digits in the amounts are recorded the wrong way round
errors where the trail balance still balances
error of omission
error of commission
error of principle
compensating error
transposition error
how to approach error questions
what was the double entry
what should it have been
what correct is required
What is a suspense account?
temporary account which allows a transaction to be recorded in the accounting system even though the ledger account for one side of the transaction is not yet confirmed
What should happen to a suspense account before financial statements are made?
need to be cleared
Who makes suspense accounts?
can be accounting system or manually created by book keeper
how to approach suspense account questions
they should have a suspense account
part of the the correction journal will be to reverse this suspense account entry
the correction journal must always include an equal debit and credit
Adjustment to profit - Will this affect profit?
Dr statement of financial position account
Cr statement of financial position account
no
Adjustment to profit - Will this affect profit?
Dr statement of profit or loss
Cr statement of profit or loss
no
Adjustment to profit - Will this affect profit?
Dr statement of profit or loss
Cr statement of financial position account
profit increase
