Suspense

Question 1

Why does a suspense account arise?

Answer 1

• due to errors in bookkeeping
• the trial balance fails to balance and the difference between both sides is placed temporarily in a suspense account in the trial balance. Suspense account remains until the errors can be found

Question 2

What is a trial balance and what is its purpose?

Answer 2

• extracted from the ledgers
• prepared in order to test/check the accuracy of double entry bookkeeping before preparing final accounts & balance sheet
• should have same total debits and credits because under double entry bookkeeping, every debit entry should have a corresponding credit entry

Question 3

What errors are not revealed by a trial balance?

Answer 3

Error of omission - transactions completely omitted from books
Error of commission - correct amount entered in the correct side of the incorrect account
Error of original entry - errors in books of first entry carried through to the ledgers account
Compensating errors - two errors that cancel each other out

Question 4

Outline errors that may affect the balancing of the trial balance

Answer 4

Mathematical errors - addition/subtraction in an account
Trial balance errors - entry on incorrect side of trial balance
Double entry errors - an entry on the credit side of an account without a debit entry on other side of account

Question 5

What is an error of principle?

Answer 5

Correct amount is entered in an incorrect account

Question 6

Distinguish between an error of omission and an error of commission

Answer 6

O - transactions completely omitted from books
C - correct amount entered on correct side of incorrect account