Errors/Suspense account

Question 1

what are 5 broad types of errors?

Answer 1

1. transposition (digits wrong way round)
2. omission (missed out)
3. principle (break accounting rules)
4. commission (dr/cr in wrong place)
5. compensating (2 errors are equal and opposite each other)

Question 2

steps for fixing errors

Answer 2

1. work out what they did
2. what should be done instead to rectify it
3. fix it

Question 3

what kind of an account is a suspense account?

Answer 3

a temporary one

Question 4

2 reasons why a suspense account is created

Answer 4

1. can’t match a transaction

2. don’t know which ledger account to use

Question 5

double entry: creating suspense account

Answer 5

Dr cash

Cr suspense account

Question 6

double entry: removing suspense account

Answer 6

Dr suspense account

Cr Trade receivable

Question 7

should different suspense accounts be created for different class of transactions?

Answer 7

no- all unmatched transactions go in a single suspense account

Question 8

how is net profit calculated?

Answer 8

net profit = gross profit - expenses