Correction of Error

Give an example of error of commision. Will this type of error be revealed by a trial balance? Explain your answer

• This is where the correct amount is posted to the correct side of the incorrect account.

• This error will nto be revealed by the trial balance as the correct amount has been entered on the debit side and on the credit side of the sales account in the above sample.

• The debit side and the credit side of the trial balance will agree so it will not be obvious that an error has been made.

Outline the purpose of a suspense account

• A suspense account is used when there is a mistake in the accounts that prevents that trial balance from balancing

• The difference between the debit and credit side of the trial balance is entered in the suspense account, until the errors are discovered, in order to allow the trial balance to balance.

• The relevant errors are corrected through the suspense account and the balance is then eliminated.

Explain Compensating Errors and Errors of Original Entry

• Compensation Error - This is where an error on the debit side of one account is comprehend by another error of an equal amount on the credit side of another account.

• Errors of Original Entry - These are errors made in the books of first entry which are then subsequently posted to the appropriate ledger accounts

Explain with an example, what is meant by error of principle.

• When item is posted to the incorrect class of accounts.

• For example, and electrical wholesaler purchased a motor vehicle to be used for delivery goods bought online, but includes the van in the purchases account rather than the vehicles account.

Explain why there is no closing balance on the suspense account

• The closing balance on the suspense account is always zero.

• This is because the suspense account is temporary account which holds some book-keeping errors and prevent the trial balance from balancing.

• Once these errors are corrected through suspense account, it should then be cleared.

What is the purpose of preparing a trial balance

• A trial balance is prepared in order to test/check the accuracy of double entry bookkeeping before preparing the income statement (Final Account) and the Statement of Financial position (Balance Sheet)

• A Trial Balance should have the same total of debits and credits because under double entry bookkeeping, every debit entry should have a corresponding credit entry.

Outline difference types of errors that may affect the balancing of the trial balance.

• Entering one figure on one side of a ledger account, but entering a different figure on the other side of a ledger account.

• Entering one figure on one side of a ledger account, but entering any figure on the same side of another ledger account.

• Entering one figure on one side of a ledger account but entering nothing on the other side of another ledger account.

• Mathematical errors/errors of calculation in totalling or closing off.