Part 1 illustrates the errors that do not affect the Trial Balance.
In this article, we shall discuss the different type of errors which affect the agreement of the Trial Balance. To make the Trial Balance agree, a suspense account is used as a balancing figure.
Earlier in my article on Suspense account, I have also explained about suspense account which:
- 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.
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Trial Balance As At 31 st March 2006 |
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Debit Credit $ $ Total of accounts listed 10,500 10,000 Suspense Account (balancing figure) 500 |
Before the difference are discovered, the suspense account will appear as either a debit item ( current asset ) or credit item (credit liability ) in the Balance Sheet.
It is a must that wherever possible suspense account should never be in the books.
Suspense account can be treated in two ways when errors are discovered:
- It might need to be expensed off or written back into the Income Statement when the correcting entry is to the items in the Income Statement. Hence, it might over or under state profits. ( Credit suspense a/c and Debit into Income statement )
- Or the errors in the suspense can actually relate to the Balance Sheet which will have the effect of overstating or understated assets and liabilities. ( Credit suspense a/c and Debit into Assets a/c in the Balance Sheet)
Next, let’s look at what are the types of errors that affect the Trial Balance:
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Omission Of One Entry In A Transaction |
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Example: Assuming there is a debit balance of $100.00 appearing in the Suspense account. It was subsequently discovered that this is due to: Postages paid of $100.00 was correctly taken up in the Cash book but not omitted in the Postage account The correcting entry should be: Debit: Postage $100.00 Credit: Suspense a/c $100.00 Being omission of one entry in the postage account for $100.00 |
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Incorrect Additions In The Books |
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Example: Assuming there is a debit balance of $1,000.00 appearing in the Suspense account. It was subsequently discovered that this is due to: Purchases being under-cast by $1,000.00 The correcting entry should be: Debit: Purchases $1,000.00 Credit: Suspense a/c $1,000.00 Being correction of incorrect/under cast in the purchases account. |
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Caused By More Than One Error |
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Example 1: Assuming there is a credit balance of $1,800.00 appearing in the Suspense account. It was subsequently discovered that this is due to: Returns Outwards of $900.00 been debited to Return Inwards Account The correcting entry is: Debit: Suspense a/c $1,800.00 Credit: Return Outwards a/c $900.00 Credit: Return Inwards a/c $900.00 Being correction of error, Return Outwards treated incorrectly as Return Inwards Example 2: Assuming there is a credit balance of $400.00 appearing in the Suspense account. It was subsequently discovered that this is due to: Discount received $200.00 was wrong treated as discount allowed. The correcting entry is: Debit : Suspense a/c $400.00 Credit: Discount allowed $200.00 Credit: Discount received $200.00 Being correction of error, discount received $200 wrongly treated as discount allowed. |