Answer to Accounting Test Question SP No 1 on Suspense Account

November 21st, 2006 Comments off
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Answer to Accounting Test Question SP No 1 on Suspense Account

Begin by opening the suspense account. Which side? More debit is needed to balance the trial balance, so debit the suspense account with $56,717.

Then deal with the errors in order:

  1. Sales returns should have been debited to the sales returns account and they have been credited to the purchases returns account. There are two errors here – the wrong account has been used and an entry which should have been a debit has been entered as a credit. The suspense account entry must therefore be for 2 x $8,980 or $17,960.

  1. An error of principle -no suspense account entry. Depreciation must be adjusted.

  1. Items have not been posted, therefore the suspense account is involved.

  1. Effectively a posting error-the suspense account is again involved.

  1. A trial balance error must affect the suspense account but no ledger entry.

  1. This one needs thought. Take it one sentence at a time. Is the suspense account involved? No, because we have an error of commission followed by some unrecorded transactions.

Part (A)

Suspense Account

$

$

Difference

56,717

Sales returns

8,980

Discount received

919

Purchases returns

8,980

Discount allowed

836

Insurance

580

Telephone (trial balance)

38,260

57,636

57,636


Journal entries

$

$

1 Sales returns account

8,980

Suspense account

8,980

Purchases returns account

8,980

Suspense account

8,980

2 Plant account

9,600

Plant repairs account

9,600

Depreciation (profit and loss account)

960

Plant depreciation account

960

3 Discount allowed account

836

Suspense account

836

Suspense account

919

Discount received account

919

4 Insurance account

580

Suspense account

580

5 Trial balance (no ledger entry)

38,260

Suspense account

38,260

6 Sales account

4,800

Motor vehicles disposal account

4,800

Motor vehicles disposal account

12,000

Motor vehicles asset account

12,000

Motor vehicles depreciation account

8,000

Motor vehicles disposal account

8,000

Motor vehicles disposal account

800

Answer Part (B)
Adjustment to profit

-
$

+
$

Profit as in draft profit and loss account

141,280

1 Sales returns adjustment (2 x $8,980)

17,960

2 Plant: reduction in repairs

9,600

Depreciation-6/12 x 20% x $9,600

960

3 Discount allowed

836

Discount received

919

4 Insurance-opening balance omitted

580

5 Telephone expense omitted

38,260

6 Profit on sale of car

800

Proceeds taken out of sales

4,800

63,396

152,599

(63,396)

Revised net profit

89,203

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Financial Accounting

 
 

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