Correction Of Errors And Suspense Accounts Flashcards
Two broad types of errors
- Errors that affect the agreement of the trail balance.
2. Errors that do not affect the agreement of the trail balance.
Error of omission
Where a transaction is totally not recorded in the books of the business at all.
Error of commission
Correct amount is entered but in the wrong person’s account.
Error of principle
An amount is entered in the wrong class of account. For instance the purchase of a fixed asset is debited to an expense account.
Compensating error
Where errors cancel each other out. For instance purchase is overstated by $10 and sales is overstated by $10, the errors will cancel out in the trail balance.
Error of original entry
Where the original figure is incorrect, yet the double entry is observed using the incorrect figure.
Complete reversal of entries
Where the correct accounts are used but the entries are shown on the wrong side of the account. For instance amount paid to Williams is entered as credit Williams and debit bank account.
Transposition errors
Where the wrong sequence of the individual character within a figure is entered. For instance instead of $123, $321 is recorded.
Errors that do not affect the agreement of the trail balance
- Error of omission
- Error or commission
- Error of principle
- Error of original entry
- Complete reversal of entry
- Error of transposition
- Error of compensation.
Errors affecting the trail balance agreement
- Casting errors
- Single entries - one debit/credit without corresponding credit/debit entry
- Two debits or two credits for one transaction
Where the balance of the suspense account is a credit balance
The balance should be included on the capital and liabilities of the balance sheet.
Where the balance of the suspense account is a debit balance
It should be included on the assets side of the balance sheet
