ERROR CORRECTION

Error Revealed by the Trial Balance (Trial Balance is not balance)

ERROR CORRECTION

• The possible cause are• Arithmetic errors (casting error)• Posting errors (eg both are debited)• Extraction errors (listed in the wrong side of

Trial Balance)• Omission of part of an entry• Debit and credit sides are entered with

different amount

ERROR CORRECTION

• If the error cannot be found until the time to prepare the Financial Statements, a suspense account is raised in order to “balance” the Trial Balance.

ERROR CORRECTION

• Example 1DT (RM) CR (RM)

Assets 10,000

Liabilities 7,000

Capital 2,000

Expenses 1,500

Revenues 2,000

Total 11,500 11,000

Suspense Account 500

Total 11,500 11,500

ERROR CORRECTION

Suspense Account Difference in book 500

Statement of Financial PositionAssets 10,000 Liabilities 7,000

Capital 2,500

Suspense Ac 500

10,000 10,000

ERROR CORRECTION

• Example 2DT (RM) CR (RM)

Assets 9,000

Liabilities 7,000

Capital 2,000

Expenses 1,900

Revenues 2,000

Total 10,900 11,000

Suspense Account 100

Total 11,000 11,000

ERROR CORRECTION

Suspense AccountDifference in book 100

Statement of Financial PositionAssets 9,000 Liabilities 7,000

Capital 2,100

Suspense Ac 100

9,100 9,100

ERROR CORRECTION

• Once the error has been found, the Suspense Account should be reversed. The entry required depends on the nature of the error

• Arithmetic Error (casting error) Assets + Expenses = Capital + Liabilities + Revenue

If either Asset or Expense is under (over) casted, you need to DT (CR) the account and CR (DT) the Suspense Account

ERROR CORRECTION

• Arithmetic Error Assets + Expenses = Capital + Liabilities + Revenue

If Capital, Liabilities or Revenue is under (over) casted, you need to CR (DT) the account and DT (CR) the Suspense Account

(page 159 of Roshayani)

ERROR CORRECTION

• Posting Error (both entries are either DT or CR)• Example: Payment of salary of RM5,000 was

recorded as DT to both Salary and Bank accounts

• Adjustment: Salary Account = OK, Bank Account need to be CR by RM10,000 –

why not RM5,000?

DT (RM) CR (RM)

Suspense Ac 10,000

Bank 10,000

ERROR CORRECTION

• Extraction Error (listed in the wrong side of Trial Balance)

• Example: Accounts Payable of RM2,400 was listed in the debit column of the Trial Balance

• Suspense account of RM??? was credited• Adjustment: Amend the Trial Balance (put the

Acc Payable in the credit side) and debit Suspense Account by RM???

ERROR CORRECTION

• Omission of Part of an Entry• Example: Payment to Azhar Ent (creditor) of

RM1,000 was only credited in the bank account

• Trial Balance was not balance by how much? • Was suspense Account debited or credited?

ERROR CORRECTION

• Omission of Part of an Entry• Example: Payment to Azhar Ent (creditor) of RM1,000

was only credited in the bank account• Credit balance of Trial Balance will be more by

RM1,000• Suspense Account was debited by RM1,000• Adjustment:

DT (RM) CR (RM)

Azhar Ent 1,000

Suspense Account 1,000

ERROR CORRECTION

• Debit and credit sides are entered with different amount

• Cash sales of RM1,030 was correctly debited in the Cash Account but entered as RM1,300 in the Sales Account

• Amount in which side of Trial Balance is more? What is the amount?

• The Suspense Account is debited or credited?

ERROR CORRECTION

• Debit and credit sides are entered with different amount

• Cash sales of RM1,030 was correctly debited in the Cash Account but entered as RM1,300 in the Sales Account

• Trial Balance: Credit more by 1300-1030: 270• Suspense Account: Debit balance RM270• Adjustment?