Revision Notes On Correction Of Errors

April 30th, 2008 Comments off
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Salient points:

Know how to explain the different type of errors which do not affect the agreement of trial balance:

  1. Error of Omission – when a transaction is completely omitted from the books
  2. Error of Commission-when an entry has been posted to the correct side of the Ledger but to the wrong account
  3. Error of Principle-where a transaction has been treated incorrectly as capital expenditure instead of revenue expenditure
  4. Compensating errors-where an error on the debit side is compensated by an error of equal amount on the credit side.
  5. Error of Original entry-a wrong amount is recorded in the subsidiary book and posted to the accounts.
  6. Complete Reversal Of Entries-where the correct accounts are used but each item is shown on the wrong side of the account.

Know how to correct errors which do not affect the agreement of the Trial Balance – go to illustrated examples in the section on Errors-Not-Affecting-the-trial-balance-part-1-of-2/

Learn how to correct errors which affect the agreement of the trial balance totals by using a Suspense account-go to illustrated examples in the section on Errors Affecting-the-trial-balance-and-suspense-ac-part-2-of-2/

Also, understand what is a Suspense Account re:

  • Is created when we discovered errors before the Final Accounts and Balance Sheet are prepared,
  • The account is to records the difference between the total of the debits and the total of the credits in the Trial Balance and
  • Suspense account helps to balance the Trial Balance by temporarily putting into an account which after the errors being found, the suspense account be adjusted and become zero/nil balance.

Learn how to re-compute profits and revised the balance after the errors have been corrected.

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Financial Accounting

 
 

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