control procedures

Question 1

trial balance

Answer 1

a checking device which checks the arithmetical accuracy of all ledger accounts used to summarize all the financial transaction of a business.

Question 2

advantages of trial balance (4)

Answer 2

• It is needed to check the arithmetical accuracy of the ledger accounts before preparing
  financial statements.
• Trial balance saves time as there is no need to refer back to numerous ledgers when
  preparing financial statements.
• Data arranged in trial balance is easy to analyze the performance of business
• makes sure that there all accounts are balanced

Question 3

disadvantages of trial balance (3)

Answer 3

• Some errors cannot be detected in trial balance.
• Individuals may have difficulty in preparing trial balance
• does not provide info ab the financial position of the business

Question 4

errors effecting trial balance (and suspense ac) (3)

Answer 4

single entry ommission of either dr or cr
entering two dr or two cr
entering different amounts for dr and cr

Question 5

errors not effecting trial balance COPROC

Answer 5

error of commission
error of omission
error of principle
error of reversal entries
error of original entry
error of compensation

Question 6

error of commission

Answer 6

where a transaction is correctly recorded but in the wrong account // when the correct account is used, but the amount is recorded incorrectly

Question 7

error of omission

Answer 7

where a transaction is completely omitted from the books.

Question 8

Errors of principle

Answer 8

when Transaction entered in the wrong type of account in the wrong value

Question 9

error of reversal entries

Answer 9

where the transaction is entered in correct account but the debiting and crediting is reversed

Question 10

how to correct error of reversal entries

Answer 10

use double the initial amount

Question 11

error of original entry

Answer 11

where the original entry has been wrongly recorded in the day book.

Question 12

compensating error

Answer 12

when more than one errors cancel each other out

Question 13

Advantages of draft financial statements (5)

Answer 13

• Some errors may not be important. Therefore, draft financial statements can be prepared.
• It give a reasonable estimate of profit
• This will provide information to managers to make decisions.
• It can be used to detect the mistakes and solve them later on suitable time.
• can help make decisions

Question 14

disadvantages of draft financial statements (4)

Answer 14

• Specialist may avoid important transaction that effects the profit or value of assets.
• difficult to rely on information knowing that errors exist.
• Poor decisions can be made on incorrect decisions
• time consuming as many mistakes

Question 15

effects on final balance if revenue and expenditure are incorrectly classified (in terms of errors)

Answer 15

An error of principle may occur due to incorrect classification of expenditure > may lead to under/over stating of income or assets or liabilities

Question 16

suspense acc define (2)

Answer 16

-where debit and credit of a transaction have not been recorded with the same value are discovered the suspense account will be adjusted
- used when trial balance fails to agree

Question 17

disadvantages of preparing a financial statement when a trial balance contains a suspense account (2)

Answer 17

• Inappropriate decision making and measurement.
• Costly and time consuming to prepare accounts requiring additional work.

Question 18

advantages of suspense acc after it is corrected (3)

Answer 18

*Enables progress to the Trading and profit and loss account to take place.
* Gives an indication of the potential profit made by the business.
* Efficient measurement and decision making.

Question 19

reasons to prepare financial statements with errors in the books (2)

Answer 19

• Enables a draft profit to be calculated to give an idea of the profit that may have been generated during the year
• Timing may require that financial statements are prepared before all errors are located.

Question 20

reasons to not prepare financial statements with errors in the books (2)

Answer 20

• The work in preparing the draft financial statements will have to be repeated
• The draft profit is inaccurate and could be misleading.

Question 21

use of journal entry when correcting errors

Answer 21

its a book of prime entry so it will authorize and record the correct

Question 22

use of suspense account when correcting errors

Answer 22

ac opened with the difference in the value of debits and credits so it will correct errors with individual differences found