Ppt ch 04 new

Chapter 4

Correcting Entries

Prepared by

Brooke C. W. Barker

Copyright © 2010 by Nelson Education Limited


4-2Chapter 4: Correcting Entries & Sales Taxes in Canada

Chapter Objectives

After completing this chapter, you will be able to:

record journal entries to correct errors in current and previously posted entries


4-3Chapter 4: Correcting Writing Errors

When keeping financial records for a business...

Don't:

Erase informationUse liquid cover-up (like White-Out)Write over figuresWrite too big



When keeping financial records for a business...

Do:

use only blue or black pencross out errors neatly with a single linewrite corrected information immediately above or beside the error





Don't scribble out incorrect words or

amounts.

Don't write over incorrect figures.

Cross out the error with one line and write the correction

above.


4-7Chapter 4: Recording Correcting Entries

Correcting Entry

A journal entry that transfers an amount from the incorrect account(s) to the correct account(s), or adjusts the amount of the transaction in the existing accounts.



Correcting Entry: Example 1

Payment was made by cheque to A. Smith & Sons on account. The cheque was issued for $456, but the journal entry was recorded incorrectly as $546.

Was the journal entry recorded for too much or too little?

Answer: Too much.

Solution: Record an entry that will deduct $546 – 456 = $90 from the original journal entry.




Here is the original entry that was recorded in the journal:

A/P A.Smith & Sons 546.00

Bank 546.00Paid by Cheque #53.

To deduct $90 from this entry, we will record a correcting entry:

Bank 90.00

A/P A.Smith & Sons 90.00Correcting entry for Cheque #53.

This is a reversing entry because we want to reduce the amount of the original

transaction.




A purchase of office supplies for $350 was recorded and posted by mistake to the Office Equipment account.

What account was debited in the original entry?

Office Equipment

What account should have been debited?

Office Supplies Expense

Solution: Record an entry that will transfer $350 from Office Equipment to the Office Supplies Expense account.




The original incorrect entry was:

Office Equipment 350.00

Bank 350.00Bought office supplies.

The entry to transfer $350 from Office Equipment to the Office Supplies Expense account should be:

Office Supplies Expense 350.00

Office Equipment 350.00To correct entry charged to wrong

account.

Reverse only that part of the entry that was wrong.


4-12Chapter 4: Recording Reversing Entries

Reversing Entry

A journal entry that has the effect of reversing, or undoing, the original transaction as if the entry had not happened at all.

In the Reversing Entry method, the original entry is reversed entirely, no matter what kind of error occurred.



Reversing Entry: Example 1

Assume the bookkeeper recorded this entry:


Capital 980.00Bought equipment on terms

of n/30.

Which part of the entry is wrong?

The credit to Capital. It should have been Accounts Payable.

Solution: Reverse the original entry entirely, then record a new entry the way it should have been.




Again, here is the original incorrect entry:


Capital 980.00Bought equipment on terms

of n/30.

Step 1: Reverse the original entry.

Capital 980.00

Office Equipment 980.00To reverse original incorrect

entry.

The reversing entry “cancels out” the original entry, as if it

had never happened.




Step 2: The correct entry can now be recorded.


A/P Sunare Co. 980.00To record corrected entry for

purchase of equipment.




Assume the bookkeeper recorded this entry:



Bank 550.00Bought equipment and supplies;

equipment $240.00

supplies 130.00

total $370.00

Were the correct accounts charged? Yes.

Were any of the amounts wrong? Yes, the amount charged to Office Equipment (and to Bank).




Solution: Reverse the original entry and record a new entry for the correct amounts.

Original entry:



Bank 550.00

Reversing entry:

Bank 550.00



Reversing the original entry 'cancels it out', as if it had

never happened.




Finally, record the corrected entry:



Bank 370.00To record corrected entry.

P 59 – Exercise 2P 60 – Exercise 3 Work alone or in groups Exercise 2 – prepare correcting entries Exercise 3 – prepare reversing entries

For each, prepare the original entry first so you can clearly show what will need to change to fix the entry!

Exercise 2 - Hints Jan 6 - Stationery is not an asset, but rather an expense –

which expense should have been used

Jan 13 - Telephone expense account should have been used

Jan 23 – Sara’s purchase would have been recorded in A/R until the cheque was received

Mar 17 – a computer should be debited to an asset account such as Office Equipment

Oct 3 – You need to put 36 dollars back in the bank, and take 36 dollars out of the telephone expense


4-21Chapter 4: Correcting Entries

End of Chapter 4 – Correcting Entries

Business

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