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Correction of Errorsone approach
Gabrielle Moran
17th April 2010
Sequence of topics
Double Entry including accruals/prepayments to simple P&L and Balance Sheet
Incomplete Records Control Accounts – Subsidiary Books Depreciation and Disposal Clubs, Service, Farm Manufacturing Correction of Errors Bank Reconciliations
Sequence of topics
Departmental CVP Cash Flow Product Costing Ratio Analysis Budgeting Published Tabulars
Double Entry
Accounts Purpose
AssetRecord what the firm owns and what is owed to the firm.
e.g. Vans A/C, Premises A/C, Cash A/C, Debtors A/C
LiabilityRecord what the firm owes.
e.g. Loan A/C, Bank Overdraft A/C, Creditors A/C
ExpenseRecord the firm’s day to day running expenses.
e.g. Wages A/C,, Insurance A/C, Purchases A/C
RevenueRecord day to day income earned by the firm
e.g. Sales A/C, Rent Received A/C, Commission A/C
Summary of possible entries
Debit Credit
Asset Asset
Liability Liability
Expense Expense
Revenue Revenue
4 QuestionsThus with every transaction you come across you
need to decide:
1. What are the two accounts involved?
2. Which type of account is each one?
3. Does the transaction cause an increase or decrease in each account?
4. Therefore is it a Dr or Cr?
Finally make the entry in the relevant accounts
(Handout)
Stage 1 Stage 2 Stage 3 Stage 4
Source Documents Subsidiary Books LedgerDouble Entry
Final AccountsBalance Sheet
Invoices [credit purchases and sales]
Sales BookPurchases Book
Post these transactions using Double Entry Rules
Transfer from the Ledger to ascertainProfit for the Year and the Net Worth of the Company at a point in time
Credit NotesSales Returns BookPurchases Returns Book
Cheque Payments Cheque Payments Book
ReceiptsCash Receipts Book
Anything Else General Journal
Recording Transactions
Subsidiary Books
Source documents List Reduce entries in accounts in nominal ledger
(Handout)
Trial Balance
Arithmetical check on double entry before preparation of Final Accounts and Balance Sheet
Obvious there are errors Hidden errors Material amounts Minor discrepancies
Suspense
Trial Balance doesn’t work – make it work temporarily by putting in Suspense A/C
Prepare final accounts including errors while somebody searches for errors
Correct the errors through double entry NOT by crossing out (illegal!)
ErrorsDon’t show up
Original EntryOmissionCompensating
CommissionPrincipleReversal
Do show upHalf double entryTwice on same side
Figures differentTotting errors
New information
Types of Errors
Read and Explain Pairs
Read a little -- Talk a little
(Handout)
Approaching the Question
1. What Happened
1. What should have happened
2. Correction = JOURNAL ENTRY
Journal Entries
Transfer Suspense Items
Highlight Profit & Loss items
Highlight Balance Sheet items
Suspense Account
As per Journal Entries
Transfer balance to what buried in – follow double entry rules
Adjusting the Profit
Debits in Journal =>
Increasing expenses
or
Reducing Revenue
Credits in Journal =>
Increasing Revenue
or
Reducing Expenses
Profits
Profits
Adjusting the Profit
Profit as per draft accounts
Add
Less
Corrected Net Profit
Balance Sheet Items
Item Original Figure
Changes New Figure
Premises
Debtors
Bank (xxxxx)
Creditors
Capital
Loan
Sample questions
From past exam papers
Watch for
Nature of business Unseen items Switching figures English!