Suspense Accounts and Errors Correction
Introduction
A suspense account is a temporary resting place for an entry that will end up
somewhere else once its final destination is determined. There are two reasons why a
suspense account could be opened:
1. a bookkeeper is unsure where to post an item and enters it to a suspense account
pending instructions
2. there is a difference in a trial balance and a suspense account is opened with the
amount of the difference so that the trial balance agrees (pending the discovery
and correction of the errors causing the difference). This is the only time an entry
is made in the records without a corresponding entry elsewhere (See exhibit A).
When the trial balance does not agree, the amount of the difference is entered in a
suspense account.
Exhibit A
Trial Balance as on 31 December 2005
Total after all the accounts have been listed
Suspense account
Dr.
Cr.
$
100,000
$
99,960
40
100,000
100,000
Types of Errors
There are two types of errors:
(i) Errors not affecting Trial Balance Agreement (i.e. total debit = total credit)
(ii) Errors affecting Trial Balance Agreement (i.e total debit > total credit or
total debit < total credit)
Treatment: The difference is temporarily entered into “suspense account” .
Exhibit B: Types of errors
Identify the following errors whether they affect the trial balance agreement or not.
Error type
Suspense account involved?
No
1 Error of Omission – a transaction is not recorded at all
2 Error of commission – an item is entered to the correct side of the wrong account
(there is a debit and a credit here, so the records balance)
Example: P. Luen paid us by cheque $100, correctly entered in the cash book, but
it entered wrongly into the account of P. Lee.
No
3 Error of principle – an item is posted to the correct side of the wrong type
(nature) of account
Example: when cash paid for plant repairs (expense) is debited to plant account
(asset).
(errors of principle are really a special case of errors of commission, and once again
there is a debit and a credit)
No
4 Error of original entry – an incorrect figure is entered in the records and then
posted to the correct account
Example: Cash HK$1,000 for plant repairs is entered as HK$100; plant repairs
account is debited with HK$100
No
5 Complete Reversal of entries – the amount is correct, the accounts used are
correct, but the account that should have been debited is credited and vice versa
Example: We paid cheque of $200 on 20 May 2005 to D.Chan.
Debit: Bank
Credit: D. Chan
No
6 Compensating errors – two equal and opposite errors leave the trial balance
balancing. (this case is rare)
No
Example: Purchases and Sales were overstated by $100.
7 Addition errors – figures are incorrectly added in a ledger account
e.g. overcast or undercast
Yes
8 Posting error –
a) debit but no credit; credit but no debit
b) enter a different amount on the debit side from the amount on the credit
side.
Yes
Example: cash HK$10,000 entered in the cash book for the purchase of a car is:
a) posted to Motor cars account as HK$1,000 only, no posted to cash book
9 Trial balance errors – a balance is omitted, posting an amount incorrectly, or
posting a balance to wrong side of the trial balance
Yes
Correcting errors (I) – Suspense account not involved
Errors 1 to 6, when discovered, will be corrected by means of a journal entries between
the accounts affected.
Types
of
errors
$
1 Purchases
$
250
T. Hung
Purchase of $250 was omitted, now corrected.
2 P. Lee
250
100
P. Luen
Purchases entered in wrong personal account, now corrected
3 Plant repairs
Plant
Repairs of Plant were wrongly entered to Plant account, now corrected.
100
5,500
5,500
4 Plant repairs
900
Cash
Payment of $1,000 incorrectly entered as $100, now corrected.
5 D. Chan
900
400
Bank
Payment of $200 to D. Chan incorrectly credited to his account, and
debited to bank. Error now corrected
6 Sales
Purchases
Sales and purchases accounts were overcast by $100, now corrected.
400
100
100
* For public examinations, narrations are usually not required for this topic.
Classwork
1. Show the journal entries necessary to correct the following errors: (Narrations are not
required)
(i)
A sale of goods $678 to H. Luen had been entered in H. Lui’s account.
(ii) The purchase of a machine on credit from L. Po for $4,390 had been
completely omitted from our books.
(iii) The purchase of a motor van $3,800 had been entered in error in the motor
expenses account.
(iv) A sale of $221 to C. Fat had been entered in the books, both debit and credit as
$212.
(v) Commission received $257 had been entered in error in the sales account.
Correcting Errors (II) – Suspense account involved
Errors 7 to 8 also require journal entries to correct them. One side of the journal entry
will be entered to the suspense account opened for the difference in the records.
Error 9, trial balance errors- are different. As the suspense account records the difference,
an entry to it is needed, because the error affects the difference. However, there is no
ledger entry for the other side of the correction. Only single entry is needed.
Types of
Examples
Correcting journal entries
errors
$
8
A credit sale of $150 to Mr. Chan has been
omitted from his account.
Dr. Mr. Chan
Cr. Suspense
150
150
8
A sale to C. Lee for $250 was correctly
entered in the sales book but entered in C.
Lee’s account as $520.
Dr. Suspense
Cr. C. Lee
270
270
8
A credit sale of $100 has been credited to H.
Dr. H. Cheung
200
Cheung’s account
Cr. Suspense
200
7
Sales day book was overcast by $200
Dr Sales
Cr Suspense
200
200
7
Sales account was undercast by $40
Dr Suspense
Cr Sales
40
40
9
The total of the sales account of $1,500 has
been omitted from the trial balance
Dr Suspense
1,500
9
The total of the sales account of $1,500 has
been extracted as $1,200 in the trial balance.
Dr. Suspense
300
9
The total of the sales account of $1,500 has
been extracted to the debit column of the trial
balance
Dr Suspense
($1,500 x 2)
3,000
 For HKCEE examinations, it often requires you to do the following 3 things:
 Show the journal entries to correct the errors
 Draw up the suspense account
 Show the calculation of the of the corrected net profit
An illustrative example (involving errors 1 -9)
The book-keeper of YY Limited extracted a trial balance on 31 December 2006 which
failed to agree by $330, a shortage on the credit side of the trial balance. A suspense
account was opened for the difference.
In January 2007 the following errors made in 2006 were found:
(a) Sales day book had been undercast by $100.
(b) Sales of $250 to K. Hou had been debited in error to K. Hung’s account.
(c) Rent account had been undercast by $70.
(d) Discounts received account had been undercast $300.
(e) The sale of motor vehicle at book value had been credited in error to sales account
$360.
(i)
(ii)
(iii)
Show the journal entries necessary to correct the errors. (narrations not required)
Draw up the suspense account after the errors described have been corrected.
If the net profit had previously been calculated at $7,900 for the year ended 31
December 2006, show the calculation of the corrected net profit.
Suggested Solutions:
(i)
YY Limited
The Journal
Particulars
1. Suspense
Dr
HK$
Cr
HK$
100
P & L - Sales
2. K. Hou
100
250
K. Hung
3. P & L – Rent
Suspense
250
70
70
4. Suspense
300
P & L – Discount received
5. P & L – Sales
300
300
Motor vehicle
300
6. Suspense account
360
Discount received account
360
(ii)
Sales
Discounts received
Suspense Account
HK$
100 Bal b/f
300 Rent
400
HK$
330
70
400
(iii) Leave for your own practice.
Some hints on preparing suspense accounts



Does a correction involve the suspense account? The type of error determines this.
Practice and study of Exhibit B should ensure that you see immediately which
errors affect the balancing of the records and hence the suspense account.
Which side of the suspense account must an entry go? This is one of the most
awkward problems in preparing suspense accounts. The best way of solving it is to
ask yourself which side the entry needs to be on in the other account concerned.
The suspense account entry is then obviously to the opposite side.
Look out for errors with two aspects. An entry has been made to the wrong account,
but also to the wrong side of the wrong account. Both errors must be corrected. It
is very easy to fall into the trap of correcting only one of the errors, especially
when working quickly under examination conditions.
Further Practice HKCEE Questions:
1997 HKCEE Past Paper Question 3
2000 HKCEE Past Paper Question 10
2002 HKCEE Past Paper Question 5