Chapter 20&21

Question 1

What are types of errors which do not cause a trial balance to disagree

Answer 1

1. Error of principle – one entry in the wrong
   class/type of account.
2. Error of commission – one entry in the
   correct class/type, but the wrong account.
3. Error of omission – a transaction omitted
   from the books.

Question 2

What are errors that do not cause a
trial balance to disagree

Answer 2

4. Error of prime/original entry – the wrong
   amount in a book of prime entry and thus on both sides of the ledger.
5. Compensating error – two unrelated
   arithmetic or posting errors of the same
   amount.
6. Double posting error – (a) wrong amount on both sides; (b) correct amount on the wrong side of both accounts.

Question 3

What are errors that cause a
trial balance to disagree

Answer 3

1. Arithmetic errors – the incorrect calculation of the total and/or balance of an account.
2. Posting errors – an entry (a) omitted from one side; (b) entered twice on the same side; (c) with the wrong amount on one side (e.g. transposed figures).
3. Extraction errors in preparing the trial balance. For example, a correct ledger account balance has been entered in the trial balance on the wrong side or as
   the wrong amount.

Question 4

What is the purposes of suspense
accounts

Answer 4

1. Recording undefined transactions.
2. To record in the ledger any difference on a trial balance and thus make it agree.
   * The entry in the suspense account must be on the same side of the ledger as the entry in the trial balance.
   * The error(s) are located later and corrected through the suspense account.
   * Only errors that would cause a trial balance to disagree are corrected through the suspense account.

Question 5

What is the Procedure for dealing with
the correction of errors

Answer 5

1. Consider the existing entries
2. Consider the correct entries
3. Consider what entries are necessary to correct the error:
   (a) Does it cause the TB to disagree? If so, then one entry in suspense.
   (b) Is it an error in a day book? If so, then correction via the control account (or personal account).
   (c) Does it affect the statement of profit or loss and/or statement of financial position (where these have already been prepared)?