topic5 errors and the suspense account Flashcards
errors where trial balance balances
-omission= transaction not recorded at all
-commission= posted to the wrong account, but same type
-principle= conceptually recorded incorrectly
-compensating= 2 or more errors that cancel each other out
-original entry= right entry but wrong amount
-reversal of entries= DR and CR wrong way round
ALL AFFECT BOTH DR AND CR, SO TRIAL BALANCE STILL BALANCES
how to correct errors where the tb still balances
-what double entry has been posted
-what double entry should have been posted
-what is the correction
IF ONE SIDE OF THE DOUBLE ENTRY IS NOT MENTIONED THEN ASSUME IT HAS BEEN RECORDED CORREC TLY
errors where the trial balance does not balance
-single sided entry= just debit or credit posted
-debit and credit entries are at different values
-2 debits or credits posted
-opening balance has not been bought forward
-extraction error= figure recorded incorrectly in the tb or in the wrong column on the tb
AFFECTS ONLY ONE SIDE OF TB SO DOESNT BALANCE
correction of errors where the tb does not balance
-create a suspense account to make sure tb balances: DRs=CRs
-what double entry has been posted
-what double entry should have been posted
-what is the correction
-correction always involves the suspense account and this must be cleared to a 0 balance
-suspense can also be used as a holding account
suspense account clearance
-must post equal debits and credits when clearing the suspense accounts
-once cleared, can prepare the financial statements
-depending on what is causing the error, could impact on draft profit