Name : _________________
Chapter 6
Serial No: _____
Correction of Errors [I]: Errors Not Affecting Trial Balance Agreement
6.1 Introduction
Both the trial balance and the control accounts are used to test the arithmetical accuracy of entries (運算準確性) and as an
internal control mechanism in accounting. However, some errors would not affect trial balance agreement (不影響試算表的平
衡) and thus cannot be detected by a trial balance (不能靠試算表檢查出來).
6.2 Error of commission (帳名調亂錯誤)
An error of commission is where an entry has been made in a wrong account of the same type (交易錯誤記錄在同一類別的另
一個帳戶). For example, if a trade debtor, P Lau, paid us $500 by cheque on 18 May 2010 but the receipt was wrongly credited to P
Lee’s account, instead of P Lau’s account. This type of error is called an error of commission.
The error in the above example would not affect the agreement of a trial balance (不影響試算表的平衡), as both the debit and
credit entries were of the same amount (因為借方和貸方記帳的金額相同). To correct errors in ledger accounts, we first need to
record the correcting entries in the journal (在日記簿作更正分錄) and then post the entries to the ledger accounts (把更正分錄
過帳到分類帳帳戶內). If the error was found on 31 May 2010, the error should be corrected as follows:
Record the correcting entries in the journal (第一步 在日記簿作更正分錄)
Step 1
Journal
Date
2010
May
Details
31
Step 2
Cr
$
500
P Lee
P Lau
Correction of error: Receipt from P Lau wrongly posted to P Lee’s account
$
500
Post the correcting entries to the ledger accounts (第二步 把更正分錄過帳到分類帳帳戶內)
Accounts Receivable Ledger
2010
May
Dr
31
P Lau – Error correction
P Lee
$
500
2010
May
18
Bank
$
500
31
P Lee – Error correction
$
500
P Lau
2010
May
P Lee’s account was debited in order to offset (抵銷) the incorrect credit entry in his account, while P Lau’s account was credited in
order to make the correct entry in his account.
Class work 1
1. A sale of goods for $6,780 to H Lin had been entered in H Lui’s account on 15 May 2010. Show the journal entries and ledger to
correct it if the error was found on 31 May 2010. Narrations are not required.
Journal
Date
2010
May
Details
31
2010
May
Cr
$
6,780
H Lin
H Lui
Accounts Receivable Ledger
2010
May
Dr
$
6,780
15 Sales
H Lui
$ 2010
6,780 May 31 H Lin – Error correction
31 H Lui – Error correction
H Lin
$
6,780
$
6,780
2. A medical claim by a staff member for $400 had been recorded in the motor expenses column.
Journal
Details
Dr
$
400
Medical expenses
Motor expenses
Cr
$
400
1
6.3 Error of principle (原則性錯誤)
An error of principle is where an entry has been made in a wrong type of account (錯誤記錄在另一類別的帳戶內). For example,
if we bought a lorry for $55,000 by cheque on 14 May 2010 but the value of the lorry was wrongly debited as an expense account
instead of an asset account.
The error in the above example would not affect the agreement of a trial balance (不影響試算表的平衡), as both the debit and
credit entries were of the same amount (因為借方和貸方記帳的金額相同). To correct errors, we first need to record the
correcting entries in the journal and then post the entries to the ledger accounts. If the error was found on 31 May 2010, the error
should be corrected as follows:
Record the correcting entries in the journal (第一步 在日記簿作更正分錄)
Step 1
Journal
Date
2010
May 31
Details
Dr
Cr
$
55,000
Lorries
Motor expense
$
55,000
Correction of error: Purchases of a lorry wrongly posted to motor expense account
Step 2
Post the correcting entries to the ledger accounts (第二步 把更正分錄過帳到分類帳帳戶內)
General Ledger
2010
May
2010
May
14 Bank
Motor expenses
$ 2010
55,000 May 31 Lorries – Error correction
31 Motor expenses – Error correction
Lorries
$
55,000
$
55,000
The motor expenses account was credited in order to offset the incorrect debit entry in his account, while the lorries account was
debited in order to make the correct entry in this account.
Class work 2
1. The purchase of a van for $38,000 in cash had been entered in the motor expenses account on 10 March 2010. Show the
journal entries and ledger to correct it if the error was found on 31 March 2010. Narrations are not required.
Journal
Date
2010
Mar
Details
Dr
Cr
$
38,000
31 Vans
Motor expenses
$
38,000
General Ledger
2010
Mar
2010
May
10 Cash
Motor expenses
$ 2010
38,000 Mar 31 Vans – Error correction
31 Motor expenses – Error correction
Vans
$
38,000
$
38,000
2. A cheque of $1,890 for advertisement payment had been entered in the cash column of the cash book on 3 December 2010.
Show the journal entries to correct it if the error was found on 31 December 2010. Narrations are not required.
Journal
Date
2010
Dec
Details
31
Dr
$
1,890
Cash
Bank
Cr
$
1,890
2
6.4 Error of omission (遺漏錯誤)
An error of omission is where no entry has been made for a transaction (漏記交易項目). For example, if we bought goods on
credit from T Hui for $2,500 on 12 May 2010 but no entries were made in our books to record this transaction.
The error in the above example would not affect the agreement of a trial balance (不影響試算表的平衡), as no entries were
made in the ledger accounts (因為借方和貸方皆沒有記帳). To correct errors, we remake the omitted entries by recording the
correcting entries in the journal and then post the entries to the ledger accounts. If the error was found on 31 May 2010, the error
should be corrected as follows:
Record the correcting entries in the journal (第一步 在日記簿作更正分錄)
Step 1
Journal
Date
2010
May 31
Details
Dr
Cr
$
2,500
Purchases
T Hui
$
2,500
Correction of error: Credit purchases from T Hui not recorded.
Step 2
Post the correcting entries to the ledger accounts (第二步 把更正分錄過帳到分類帳帳戶內)
General Ledger
2010
May
31 T Hui – Error correction
Purchases
$
2,500
Accounts Payable Ledger
T Hui
2010
May 31 Purchases – Error correction
$
2,500
Class work 3
1. The purchase of a machine on credit from L Po for $43,900 had been completely omitted from the books on 18 March 2010.
Show the journal entries and ledger to correct it if the error was found on 31 March 2010. Narrations are not required.
Journal
Date
2010
Mar
Details
31
Dr
Cr
$
43,900
Machinery
L Po
$
43,900
General Ledger
2010
Mar
31 L Po – Error correction
Machinery
$
43,900
Accounts Payable Ledger
L Po
2010
Mar 31 Machinery – Error correction
$
43,900
2. Accrued rental expenses of $5,210 were omitted from the books on 8 December 2010. Show the journal entries to correct it if
the error was found on 31 December 2010. Narrations are not required.
Journal
Date
2010
Dec
Details
31
Dr
$
5,210
Rental expenses
Accrued rental expenses
Cr
$
5,210
3
6.5 Error of original entry (原始分錄錯誤)
An error of original entry is where an incorrect amount has been entered in a book of original entry (在原始分錄簿錯記金額)
and therefore the posting to ledger accounts is made with that incorrect amount (因此過帳到分類帳帳戶的金額也不正確). For
example, if we sold goods on credit to T Lo for $1,500 on 13 May 2010 but the debtor’s account and the sales account were
wrongly debited and credited with $1,300 instead of $1,500.
The error in the above example would not affect the agreement of a trial balance, as both the debit and credit entries were of the
same amount. To correct errors, T Lo’s account and the sales account were debited and credited, respectively, in order to add back
the understated amount ($200) to these accounts. If the error was found on 31 May 2010, the error should be corrected as follows:
Record the correcting entries in the journal (第一步 在日記簿作更正分錄)
Step 1
Journal
Date
2010
May
Step 2
Details
31
Dr
Cr
$
200
T Lo
Sales
Correction of error: Credit sales of $1,500 wrongly posted as $1,300
$
200
Post the correcting entries to the ledger accounts (第二步 把更正分錄過帳到分類帳帳戶內)
Accounts Receivable Ledger
T Lo
2010
May
May
13
31
Sales
Sales – Error correction
$
1,300
200
General Ledger
Sales
2010
May
May
13
31
$
1,300
200
T Lo
T Lo – Error correction
Class work 4
1. A sale of goods for $2,210 to C Fung had been entered in the sales journal as $2,120 on 18 March 2010. Show the journal
entries and ledger to correct it if the error was found on 31 March 2010. Narrations are not required.
Journal
Date
2010
Mar
Details
31
Dr
Cr
$
90
C Fung ($2,210  $2,120)
Sales
$
90
Accounts Receivable Ledger
2010
Mar
Mar
18 Sales
31 Sales – Error correction
C Fung
$
2,120
90
General Ledger
Sales
2010
May 18 C Fung
May 31 C Fung – Error correction
$
2,120
90
2. Purchases of $8,900 on credit from K Li had been entered in the purchases journal as $9,900 on 8 December 2010. Show the
journal entries to correct it if the error was found on 31 December 2010. Narrations are not required.
Journal
Date
2010
Dec
Details
31
Dr
$
1,000
K Li ($9,900  $8,900)
Purchases
Cr
$
1,000
4
6.6 Complete reversal of entries (顛倒入帳)
Complete reversal of entries is where a double entry has been made on the wrong sides of ledger accounts (顛倒入帳是指顛倒
了分類帳帳戶的借方和貸方). For example, if we paid $2,000 cash to a trade creditor, D Cheung, on 28 May 2010. The cash
account was wrongly debited and the creditor’s account was wrongly credited. This error would not affect the agreement of a trial
balance, as both the debit and credit entries were of the same amount. If the error was found on 31 May 2010, the error should be
corrected as follows:
Record the correcting entries in the journal (第一步 在日記簿作更正分錄)
Step 1
Journal
Date
2010
May
Step 2
Details
31
Dr
D Cheung
Cash
Correction of error: Cash payment to D Cheung wrongly debited to cash account and credited
to D Cheung’s account.
Cr
$
4,000
$
4,000
Post the correcting entries to the ledger accounts (第二步 把更正分錄過帳到分類帳帳戶內)
Accounts Payable Ledger
D Cheung
2010
May
31
Cash – Error correction
$
4,000
2010
May
28
Cash
$
2,000
31
D Cheung – Error correction
$
4,000
General Ledger
Cash
2010
May
28
D Cheung
$
2,000
2010
May
Class work 5
1. A cash payment of $8,000 to H Kwong had been entered on the debit side of the cash book and the credit side of H Kwong’s
account on 28 May 2010. Show the journal entries and ledger to correct it if the error was found on 31 May 2010.
Journal
Date
2010
May
Details
31
Dr
Cr
$
16,000
H Kwong
Cash
$
16,000
Accounts Payable Ledger
2010
May
31 Cash – Error correction
H Kwong
$ 2010
16,000 May 28 Cash
$
8,000
General Ledger
2010
May
28 H Kwong
Cash
$ 2010
8,000 May 31 H Kwong – Error correction
$
16,000
2. Sales of $1,250 had been entered on the wrong side of the sales and debtor’s account on 8 December 2010. Show the journal
entries to correct it if the error was found on 31 December 2010. Narrations are not required.
Journal
Date
2010
Dec
Details
31
Dr
$
2,500
Debtor ($1,250 x 2)
Sales
Cr
$
2,500
5
6.7 Compensating errors (抵銷性錯誤)
Compensating errors are where two or more errors cancel out each other (抵銷性錯誤是指當兩個或以上的錯誤互相抵銷) so
that trial balance agreement is not affected (使試算平衡不會受到影響). For example, if the monthly total in the purchases
journal was overcast as $80,000 instead of $79,000, while the monthly total in the sales journal was overcast as $100,000 instead
of $99,000 at the end of May 2010. Therefore, the purchases account was debited with an additional $1,000 and the sales account
was also credited with an additional $1,000. These two errors would offset each other and the trial balance would still agree. If the
errors were found on 15 June 2010, the error should be corrected as follows:
Record the correcting entries in the journal (第一步 在日記簿作更正分錄)
Step 1
Journal
Date
2010
Jun
Step 2
Details
15
Dr
Cr
$
1,000
Sales
Purchases
Correction of error: Both purchases and sales overcast by $1,000
$
1,000
Post the correcting entries to the ledger accounts (第二步 把更正分錄過帳到分類帳帳戶內)
General Ledger
Purchases
2010
May
31
Total for the month
$
80,000
2010
Jun
15
Sales – Error correction
31
Total for the month
$
1,000
Sales
2010
Jun
15
Purchases – Error correction
$
1,000
2010
May
$
100,000
Class work 6
1. If the monthly total of the returns inwards was $8,000 and the monthly total of the returns outwards was $120,000 on 31 May
2010 but both accounts had been overcast by $2,000. Show the journal entries and ledger to correct it if the error was found on
31 May 2010.
Journal
Date
2010
May
Details
Dr
Cr
$
31
$
2,000
Returns outwards
2,000
Returns inwards
General Ledger
2010
May
2010
May
31 Returns inwards – Error correction
31 Total for the month
Returns outwards
$ 2010
2,000 May 31 Total for the month
$
120,000
Returns inwards
$ 2010
8,000 May 31 Returns outwards – Error correction
$
2,000
2. Both the rent revenue and motor expense had been undercast by $200 on 8 December 2010. Show the journal entries to
correct it if the error was found on 31 December 2010. Narrations are not required.
Journal
Date
2010
Dec
Details
31
Dr
$
200
Motor expense
Rent revenue
Cr
$
200
6
Errors in nominal accounts after closing entries (名義賬戶關閉後的錯誤)
If errors affecting nominal accounts (such as revenue and expense accounts) are found after closing entries have been made at
the end of an accounting period (如果一些影響名義帳戶的錯誤在會計期結束後被發現), they should not be corrected in the
nominal accounts (他們不應該在名義帳戶內糾正) because these accounts have been closed off (因為這些名義帳戶已被封閉).
Instead, these errors should be corrected directly in the profit and loss account (相反，這些錯誤應該直接在損益表糾正內).
For example, if we bought a lorry for $55,000 by cheque on 14 May 2010 but the value of the lorry was wrongly debited as an
expense account instead of an asset account. If the error was found at the end of accounting year, the error should be corrected as
follows:
Record the correcting entries in the journal (第一步 在日記簿作更正分錄)
Step 1
Journal
Date
2010
Dec
Details
31
Step 2
Dr
$
55,000
Lorries
Profit and loss – Motor expenses
Cr
$
55,000
Post the correcting entries to the ledger accounts (第二步 把更正分錄過帳到分類帳帳戶內)
General Ledger
2010
Dec
Lorries
31
Profit and loss – Motor expenses
$
55,000
Profit and loss
2010
Dec
31
$
55,000
Lorries – Motor expenses
6.8 Errors in year-end adjustments (期末調整的錯誤)
Adjustments are required for the following items at the end of an accounting period:
 Valuation of inventory (Closing inventory) (存貨計價的錯誤)
 Depreciation of non-current assets (折舊計算的錯誤)
 Allowance for doubtful accounts (呆帳準備的錯誤)
 Accruals and prepayments (處理應計和預付項目的錯誤)
1
Errors in the valuation of inventories (存貨計價的錯誤)
If the closing inventory was valued at $20,000 at the end of an accounting period, we made the following entries:
Inventory
Profit and loss
$
20,000
Profit and loss
$
20,000
Inventory
However, it was later found that the closing inventory had been overvalued by $2,000. The correcting entries would be:
Journal
Details
Dr
Cr
$
2,000
Profit and loss – Closing inventory
Inventory
Correction of error: Closing inventory overvalued by $2,000
$
2,000
Class work 7
The closing inventory had been undercast by $800. Show the journal entries to correct it. Narrations are not required.
Journal
Details
Dr
$
800
Inventory
Profit and loss – Closing inventory
Cr
$
800
7
2
Errors in the charging of depreciation (折舊計算的錯誤)
If the depreciation of $4,000 was charged on machinery, we made the following entries:
Depreciation: Machinery
$
4,000
Accumulated depreciation: Machinery
$
Accumulated depreciation: Machinery
$
$
4,000
Depreciation: Machinery
However, it was later found that the depreciation had been overcharged by $400. The correcting entries for the error would be:
Journal
Details
Dr
Cr
$
400
Accumulated depreciation: Machinery
Depreciation: Machinery* (Profit and loss  Depreciation)
Correction of error: Depreciation on machinery overcharged.
$
400
Note: If the depreciation charged account had been closed off, the entry would have been made in the profit and loss account.
Class work 8
Depreciation on office furniture had been overcharged by $2,000. Show the journal entries to correct it if the depreciation charged
account for office furniture is closed. Narrations are not required.
Journal
Details
Dr
Cr
$
Accumulated depreciation: Office furniture
Profit and loss  Depreciation
3
$
2,000
2,000
Errors in the allowance for doubtful accounts (呆帳準備的錯誤)
If the allowance for doubtful accounts was increased by $2,300, we made the following entries:
Profit and loss
Allowance for doubtful accounts
$
2,300
$
Allowance for doubtful accounts
$
$
Profit and loss – Increase in allowance for doubtful
accounts $2,300
2,300
However, it was later found that the allowance for doubtful accounts should have been increased by $3,200. The correcting entries
for the error would be:
Journal
Details
Dr
Profit and loss – Increase in allowance for doubtful accounts ($3,200  $2,300)
Allowance for doubtful accounts
Correction of error: Allowance for doubtful accounts undercharged.
Cr
$
900
$
900
Class work 9
The allowance for doubtful accounts should have been increased by $4,200 instead of $2,400. Show the journal entries to correct it.
Narrations are not required.
Journal
Details
Dr
Profit and loss – Increase in allowance for doubtful accounts ($4,200  $2,400)
Allowance for doubtful accounts
8
$
1,800
Cr
$
1,800
4
Errors in the treatment of accruals and prepayments (處理應計和預付項目的錯誤)
If the rent payment during the whole period amounted to $80,000 by cheque and rent expense account was adjusted for an
accrual of $14,000 at the end of an accounting period, we made the following entries:
Bank
Accrued c/f
Rent Expense
$
80,000 Profit and loss
14,000
94,000
Accrued b/f
$
94,000
94,000
14,000
However, it was later found that the accrual should have been a prepayment of rent. The correcting entries for the error would be:
Profit and loss
Prepaid b/f
Alternative method
Bank
Accrued rent expense
Rent Expense
$
28,000 Accrued b/f
Prepaid c/f
28,000
14,000
$
14,000
14,000
28,000
Rent Expense
$
80,000 Profit and loss
14,000
94,000
$
94,000
94,000
Accrued rent expense
$
14,000
Rent expense
However, it was later found that the accrual should have been a prepayment of rent. The correcting entries for the error would be:
Journal
Details
Dr
Accrued rent expense
Prepaid rent expense
Rent expense* (Profit and loss – Rent expenses)
Correction of error: Prepayment of rent wrongly treated as an accrual.
Cr
$
14,000
14,000
$
28,000
Note: If the rent expense account had been closed off, the credit entry would have been made in the profit and loss account.
Rent expense
Accrued rent expense
$
14,000 Rent expense
Rent expense
Prepaid rent expense
$
14,000
Profit and loss
$
14,000
Rent Expense
$
28,000 Accrued rent expense
Prepaid rent expense
28,000
$
14,000
14,000
28,000
Class work 10
An accrued expense of $500 had been recorded as an accrued revenue and the expenses and revenues accounts are closed.
Journal
Details
Dr
Cr
$
$
Profit and loss  revenue/expense
Accrued revenue
Accrued expense
1,000
500
500
9
Class work 11
1. For each of the independent situations described below, prepare journal entries to show the necessary adjustment. Narrations
are not required.
(i)
Rental income of $4,355 represented the amount received for sub-letting part of the office premises for 13 months from 1
January 2011 to 31 January 2012.
(ii)
An insurance premium of $2,190 was prepaid for the three months ended 31 March 2012.
(iii) Accrued rental expenses of $5,210 and prepaid insurance expenses of $2,100 were omitted from the books.
(iv) An accrued expense of $700 had been recorded as a prepaid expense and the expenses accounts are closed.
(v)
The accrued expenses of $180 should have been prepaid expenses and the expenses accounts are closed.
(vi) The firm had $11,250 in wages and salaries outstanding as at 31 March 2010 but this had not been recorded and the wages
and salaries account is closed.
(vii) As at 31 December 2010, prepaid rent and accrued telephone expenses amounted to $500 and $300, respectively. No entry
had been made in the books and the expenses accounts are closed.
(viii) As at 30 April 2010, prepaid repair costs and accrued rent revenue amounted to $210 and $1,700, respectively. No entry had
been made in the books.
(ix) As at 30 June 2012, prepaid wages and accrued miscellaneous expenses were $1,000 and $1,300, respectively. No entry had
been made in the books and the expenses accounts are closed..
Journal
Details
Dr
$
335
(i) Rental income ($4,355 x 1/13)
Unearned revenue
Cr
$
335
2,190
(ii)
Prepaid expenses
Insurance
(iii) Rental expenses
Accrued rental expenses
Prepaid insurance expenses
Insurance expenses
(iv) Profit and loss – Expenses ($700 x 2)
Prepaid expense
Accrued expense
(v) Accrued expenses
Prepaid expenses
Profit and loss ($180 x 2)
(vi) Profit and loss – Wages and salaries
Accrued expenses
(vii) Prepaid expenses
Profit and loss – Rent
Profit and loss – Telephone expenses
Accrued expenses
(viii) Prepaid expenses
Repair costs
Accrued revenue
Rent revenue
(ix) Prepaid expenses
Profit and loss – Wages and salaries
Profit and loss – Miscellaneous expenses
Accrued expenses
2,190
5,210
5,210
2,100
2,100
1,400
700
700
180
180
360
11,250
11,250
500
500
300
300
210
210
1,700
1,700
1,000
1,000
1,300
1,300
10
2. For each of the independent situations described below, prepare journal entries to show the necessary adjustment. Narrations
are not required.
(i) After inventory was taken at the year-end date, the closing inventory was determined to be $314,800. The bookkeeper
recorded it in the books as follows:
Dr Profit and loss account $318,400
Cr Inventory account $318,400
(ii) Accrued rental expenses of $5,210 and prepaid insurance expenses of $2,100 were omitted from the books.
(iii) Depreciation for office equipment was overcharged by $3,800.
(iv) The bank made a payment of $6,443 under a standing order for a subscription to a trade association. The item had been
debited to the wages account.
(v) A bad debt recovered in the amount of $880 was for a debt written off earlier in the same financial year. No record was made
of the recovery.
(vi) A cheque for $2,220 was drawn by the business at the year-end date but had not yet been presented for payment.
Journal
Details
Dr
$
633,200
(i) Inventory ($318,400 + $314,800)
Profit and loss ─ Closing inventory
(ii) Rental expenses
Accrued rental expenses
Prepaid insurance expenses
Insurance expenses
(iii)
(iv)
(v)
(vi)
Cr
$
633,200
5,210
5,210
2,100
2,100
Accumulated depreciation: Office equipment
Depreciation: Office equipment
3,800
Subscriptions
Wages
6,443
3,800
6,443
880
Account receivable
Bad debts
No journal entry is required
880
11
3.
F Mok, a wholesaler, does not know much about accounting. He has drawn up the following trial balance for his business.
F Mok
Trial Balance as at 31 December 2009
Dr
$
3,000
6,400
Inventory as at 1 January 2009
Inventory as at 31 December 2009
Purchases
Sales
Office equipment (net)
Furniture and fittings (net)
Bank
Accounts receivable
Accounts payable
Office expenses
Sundry expenses
Capital
Cr
$
10,000
22,000
10,000
20,000
6,000
3,600
2,400
4,000
2,500
34,700
62,300
62,300
Required:
(a) After the preparation of the trial balance, the following errors were found:
(i)
Repairs to office equipment for $500 had been entered in the office equipment account.
(ii) Both the sales and purchases accounts had been overcast by $200.
(iii) A sundry expense of $100 should have been accrued.
Show the journal entries to correct the above errors.
(b) Prepare a corrected trial balance as at 31 December 2009.
(a)
Journal
Details
Dr
$
500
(i) Office expenses
Office equipment
Sales
(ii)
Purchases
(iii) Sundry expenses
Accrued expenses
Cr
$
500
200
200
100
100
(b)
F Mok
Corrected Trial Balance as at 31 December 2009
Dr
$
3,000
9,800
Inventory as at 1 January 2009
Purchases ($10,000 – $200)
Sales ($22,000 – $200)
Office equipment (net) ($10,000 – $500)
Furniture and fittings (net)
Bank
Accounts receivable
Accounts payable
Office expenses ($4,000 + $500)
Sundry expenses (2500 + 100)
Accrued expenses
Capital
Cr
$
21,800
9,500
20,000
6,000
3,600
2,400
4,500
2,600
62,300
12
100
34,700
62,300
4. The following trial balance was extracted from Dolce Enterprise’s books as at 31 December 2011:
Dr
$
Capital as at 1 January 2011
5% bank loan
Non-current assets
Purchases
Sales
Inventory as at 1 January 2011
Loan interest
Accounts receivable
Accounts payable
Bank
Bad debts
Water and electricity
Carriage outwards
Rental income
Returns outwards
Rent, rates and insurance
Salaries and wages
General expenses
Cr
$
300,000
150,000
270,300
733,500
1,149,750
91,800
7,500
181,900
164,200
123,350
1,800
7,000
2,255
4,355
7,950
201,000
148,050
7,800
1,776,255
1,776,255
Inventory as at 31 December 2011 was valued at $90,855.
After the preparation of the trial balance, the following errors were discovered:
(i) A credit purchase of $1,500 had been completely omitted.
(ii) A credit sale of goods to Miss Fong totalling $1,300 had been posted to her personal account in the accounts receivable ledger
and the sales account as $3,100.
(iii) Bank charges of $150 were included in the bank statement for December 2011. No entry had been made in the books.
(iv) Rental income represented the amount received for sub-letting part of the office premises for 13 months from 1 January 2011
to 31 January 2012.
(v) An insurance premium of $2,190 was prepaid for the three months ended 31 March 2012.
Required:
(a)
Show the journal entries to correct the above errors. (Narrations are not required.)
(b)
Prepare a corrected trial balance as at 31 December 2011.
(c)
Prepare an income statement for the year ended 31 December 2011.
Answer:
(a)
The Journal
Details
Dr
Cr
$
(i)
Purchases
1,500
Accounts payable
(ii)
1,500
Sales ($3,100 – $1,300)
1,800
Miss Fong
(iii)
1,800
Bank charges
150
Bank
(iv)
150
Rental income
335
Unearned revenue ($4,355  1/13)
(v)
$
335
Prepaid expenses
2,190
Insurance
2,190
13
(b)
Dolce Enterprise
Corrected Trial Balance as at 31 December 2011
Dr
$
Capital as at 1 January 2011
5% bank loan
Non-current assets
Purchases ($733,500 + $1,500)
Sales ($1,149,750 – $1,800)
Inventory as at 1 January 2011
Loan interest
Accounts receivable ($181,900 – $1,800)
Accounts payable ($164,200 + $1,500)
Bank ($123,350 – $150)
Bad debts
Water and electricity
Carriage outwards
Rental income ($4,355 – $335)
Returns outwards
Rent, rates and insurance ($201,000 – $2,190)
Salaries and wages
General expenses
Bank charges
Prepaid expenses
Unearned revenue
Cr
$
300,000
150,000
270,300
735,000
1,147,950
91,800
7,500
180,100
165,700
123,200
1,800
7,000
2,255
4,020
7,950
198,810
148,050
7,800
150
2,190
1,775,955
335
1,775,955
(c)
Opening inventory
Purchases
Less Returns outwards
Less Closing inventory
Cost of goods sold
Gross profit c/d
Loan interest
Bad debts
Water and electricity
Carriage outwards
Rent, rates and insurance
Salaries and wages
General expenses
Bank charges
Net profit
Dolce Enterprise
Income Statement for the year ended 31 December 2011
$
$
91,800 Sales
735,000
(7,950)
727,050
818,850
(90,855)
727,995
419,955
1,147,950
7,500 Gross profit b/d
1,800 Rental income
7,000
2,255
198,810
148,050
7,800
150
50,610
423,975
14
$
1,147,950
1,147,950
419,955
4,020
423,975
5. The balance sheet of Watt Enterprise as at 31 March 2010 is set out below:
Balance Sheet as at 31 March 2010
$
Non-current assets
Plant and machinery
Less Accumulated
depreciation
Motor vehicles
Less Accumulated
depreciation
Current assets
Inventory
Accounts receivable
Bank
$
120,000
(30,000 )
112,500
90,000
(52,500 )
60,000
150,000
12,300
6,225
3,975
$
Capital
Balance as at 1 April 2009
Add Net profit for the year
Less
135,000
43,500
178,500
(11,190 )
167,310
Drawings
Current liabilities
Accounts payable
Accrued expenses
$
5,010
180
22,500
172,500
5,190
172,500
After investigation, the following information was revealed:
(i) During the inventory taking on 31 March 2010, 375 units of goods were entered at a unit cost of $1.8. Those goods should
have been valued at $10.8 per unit.
(ii) An allowance for doubtful accounts at 8% of accounts receivable was to be created. In addition, an allowance for discounts
allowed of 2% was to be made.
(iii) It is the firm’s policy to depreciate non-current assets based on the reducing-balance method. Unfortunately, the accounts
clerk wrongly computed the depreciation for the year (plant and machinery for $12,000 and motor vehicles for $22,500)
based on the straight-line method even though the same rates had been applied. There was no purchase or disposal of
non-current assets during the year.
(iv) The accrued expenses of $180 should have been prepaid expenses.
(v) The firm had $11,250 in wages and salaries outstanding as at 31 March 2010 but this had not been recorded.
Required:
(a)
Prepare the journal entries to correct the above errors. (Narrations are not required.)
(b)
Calculate the net profit after adjustments have been made.
(c)
Prepare a statement to ascertain the amount of net current assets as at 31 March 2010.
(W1) Plant and machinery:
(Calculations to the nearest dollar)
Depreciation rate =
$12,000
 100% = 10%
$120,000
Answer:
Under the reducing-balance method, the depreciation charge for the year
(a)
= [$120,000 – ($30,000 – $12,000)]  10% = $10,200
Details
(i)
(ii)
(iii)
(iv)
(v)
 Depreciation
overstated = $12,000 – $10,200 = $1,800
The Journal
Dr
Cr
$
$
(W2) Motor vehicles:
3,375
Inventory [375 × ($10.8 – $1.8)]
$22,500
3,375
 100% = 20%
Profit and loss ─ Closing inventoryDepreciation rate =
$112,500
613
Profit and loss
Under
the
reducing-balance
method,
the
depreciation
charge
for the year
498
Allowance for doubtful accounts ($6,225 × 8%)
115
= [$112,500
– ($52,500
Allowance for discounts allowed [($6,225
– $498)
× 2%] – $22,500)]  20% = $16,500
1,800
Accumulated depreciation: Plant andmachinery
Depreciation overstated = $22,500 – $16,500 = $6,000
1,800
Profit and loss ─ Depreciation (W1)
6,000
Accumulated depreciation: Motor vehicles
6,000
Profit and loss ─ Depreciation (W2)
180
Accrued expenses
180
Prepaid expenses
360
Profit and loss ─ expenses
11,250
Profit and loss ─ Wages and salaries
11,250
Accrued expenses
15
(b)
Watt Enterprise
Statement of Adjusted Net Profit for the year ended 31 March 2010
$
Net profit before adjustments
Add Closing inventory understated (i)
Depreciation on plant and machinery overstated (iii)
Depreciation on motor vehicles overstated (iii)
Prepaid expenses wrongly recorded as accrued expenses (iv)
Less Allowance for doubtful accounts omitted (ii)
Allowance for discounts allowed omitted (ii)
Accrued expenses omitted (v)
Adjusted net profit
3,375
1,800
6,000
360
498
115
11,250
$
43,500
11,535
55,035
(11,863)
43,172
(c)
Watt Enterprise
Statement of Adjusted Net Current Assets as at 31 March 2010
$
Current assets
Inventory ($12,300 + $3,375)
Accounts receivable
Less Allowance for doubtful accounts
Allowance for discounts allowed
$
15,675
6,225
(498)
(115)
Prepaid expenses
Bank
5,612
180
3,975
25,442
Less
Current liabilities
Accounts payable
Accrued expenses
5,010
11,250
Adjusted net current assets
(16,260)
9,182
16
6. The petty cashier of Hush Enterprise found that the petty cash balance shown in the petty cash book as at 30 April 2011 was
different from the amount kept in the cash box. The balances were as follows:
Balance as per petty cash book
$1,250
Petty cash balance in the cash box
$3,080
The monthly total of the expenses paid by petty cash had already been posted to the general ledger.
After investigation, the petty cashier found the following mistakes:
(i) A payment for cleaning expenses of $450 had been recorded twice in the petty cash book.
(ii) Travelling expenses of $55 had been recorded in the petty cash book as $25.
(iii) A medical claim by a staff member for $400 had been recorded in the motor expenses column.
(iv) A magazine subscription of $1,000 had been paid by cheque. The petty cashier wrongly recorded it in the petty cash book.
(v) A petty cash application to purchase stationery costing $710 was not paid by the petty cashier until 1 May 2011. However,
it had been recorded in the petty cash book.
(vi) During the month, the petty cashier reimbursed a staff member $330 for postage, which was actually $30. The amount
recorded in the petty cash book was $30. As at 30 April 2011, the staff member had not returned the overpayment.
Required:
(a) Prepare the journal entries to correct the above errors. (Narrations are not required.)
(b) Prepare a statement to show the correct petty cash book balance.
(c) Prepare a statement to show the correct petty cash on hand balance, starting with the corrected petty cash book balance
computed in part (b).
Answer:
(a)
The Journal
Details
(i)
(ii)
(iii)
(iv)
(v)
Dr
Cr
$
450
Petty cash
Cleaning expenses
Travelling expenses ($55 – $25)
Petty cash
Medical expenses
Motor expenses
Petty cash
Bank
Petty cash
Stationery expenses
$
450
30
30
400
400
1,000
1,000
710
710
(b)
Statement Showing the Correct Petty Cash Book Balance as at 30 April 2011
$
Balance as per petty cash book before correction
Add Cleaning expenses recorded twice (i)
Magazine subscription wrongly recorded (iv)
Stationery expense not yet incurred (v)
450
1,000
710
Less Travelling expenses understated (ii)
Correct petty cash book balance
$
1,250
2,160
3,410
(30)
3,380
(c)
Statement Showing the Correct Petty Cash On Hand Balance as at 30 April 2011
$
Correct petty cash book balance
3,380
Less
(300)
Over-payment of postage (vi) ($330 – $30)
Correct petty cash on hand balance
3,080
17
3.
The following trial balance was extracted from Dolce Enterprise’s books as at 31 December 2011:
Dr
$
Capital as at 1 January 2011
5% bank loan
Non-current assets
Purchases
Sales
Cr
$
300,000
150,000
270,300
733,500
1,149,750
18
Inventory as at 1 January 2011
Loan interest
Accounts receivable
Accounts payable
Bank
Bad debts
Water and electricity
Carriage outwards
Rental income
Returns outwards
Rent, rates and insurance
Salaries and wages
General expenses
91,800
7,500
181,900
164,200
123,350
1,800
7,000
2,255
4,355
7,950
201,000
148,050
7,800
1,776,255
1,776,255
Inventory as at 31 December 2011 was valued at $90,855.
After the preparation of the trial balance, the following errors were discovered:
(i)
A credit purchase of $1,500 had been completely omitted.
(ii)
A credit sale of goods to Miss Fong totalling $1,300 had been posted to her personal account in the accounts receivable ledger
and the sales account as $3,100.
(iii) Bank charges of $150 were included in the bank statement for December 2011. No entry had been made in the books.
(iv) Rental income of $4,355 represented the amount received for sub-letting part of the office premises for 13 months from 1
January 2011 to 31 January 2012.
(v)
An insurance premium of $2,190 was prepaid for the three months ended 31 March 2012.
Required:
(d)
Show the journal entries to correct the above errors. (Narrations are not required.)
(e)
Prepare a corrected trial balance as at 31 December 2011.
(f)
Prepare an income statement for the year ended 31 December 2011.
Journal
Details
Dr
$
1,500
(i) Purchases
Accounts payable
(ii) Sales ($3,100  $1,300)
Miss Fong
(iii) Bank charges
Bank
(iv) Rental income ($4,355 x 1/13)
Unearned revenue
(v) Prepaid expenses
Insurance
Cr
$
1,500
1,800
1,800
150
150
335
335
2,190
2,190
3. For each of the independent situations described below, prepare the journal entries to show the necessary adjustment.
Narrations are not required.
(i)
A telephone bill for $632 had been paid through the bank using direct debit. The business made the following entries after a
bank statement was received at the end of the month.
Dr
Telephone expenses $623
Cr Bank $623
19
Discounts allowed are only for cash discount not the
trade discount. So no need to enter the discount allowed
(ii)
Credit sales of $250 to Kammy Luk, a customer, had been recorded in the purchases journal and then posted to the accounts
payable ledger.
(iii) The business decided to increase the allowance for doubtful accounts from $1,366 to $2,134.
(iv) Depreciation at a rate of 5% on cost should be made on office equipment. The cost of the office equipment was $125,000.
The following entries were made to record this:
Dr
Accumulated depreciation: Office equipment $6,250
Cr Depreciation: Office equipment $6,250
(v)
A gross credit sale of $50,000 with a 5% trade discount was made and the following entries were made:
Dr
Accounts receivable $47,500
Dr
Discounts allowed $2,500
Cr Sales $50,000
(vi) During the year, furniture which originally cost $74,220 and for which no depreciation had been was sold for $33,990 and the
sum was paid by cheque. The bookkeeper debited the bank account and credited the sales account.
Journal
Details
Dr
(i) Telephone expenses ($632  $623)
Bank
(ii) Accounts payable  Kammy Luk
Purchases
Accounts receivable  Kammy Luk
Sales
(iii) Profit and loss – Increase in allowance for doubtful accounts ($2,134 $1,366)
Allowance for doubtful accounts
(iv) Depreciation: Office equipment ($6,250 x 2)
Accumulated depreciation: Office equipment
(v) Sales ($50,000 – $47,500)
Discounts allowed
(vi) Sales
Disposal: Furniture
Disposal: Furniture
Furniture
Profit and loss – Loss on disposal
Disposal: Furniture
Look back to Disposal of non-current assets
20
Cr
$
9
$
9
250
250
250
250
768
768
12,500
12,500
2,500
2,500
33,990
33,990
74,220
74,220
40,230
40,230
The balance sheet of Watt Enterprise as at 31 March 2010 is set out below:
Balance Sheet as at 31 March 2010
$
Non-current assets
Plant and machinery
Less Accumulated
depreciation
Motor vehicles
)Less Accumulated
depreciation
$
$
Capital
Balance as at 1 April 2009
Add Net profit for the year
120,000
(30,000 )
112,500
90,000
(52,500 )
60,000
150,000
Current assets
Inventory
Accounts receivable
Bank
12,300
6,225
3,975
Less
135,000
43,500
178,500
(11,190)
167,310
Drawings
Current liabilities
Accounts payable
Accrued expenses
$
5,010
180
22,500
172,500
5,190
172,500
After investigation, the following information was revealed:
(vi) During the inventory taking on 31 March 2010, 375 units of goods were entered at a unit cost of $1.8. Those goods should
have been valued at $10.8 per unit.
(vii) An allowance for doubtful accounts at 8% of accounts receivable was to be created. In addition, an allowance for discounts
allowed of 2% was to be made.
(viii) It is the firm’s policy to depreciate non-current assets based on the reducing-balance method. Unfortunately, the accounts
clerk wrongly computed the depreciation for the year (plant and machinery for $12,000 and motor vehicles for $22,500) based
on the straight-line method even though the same rates had been applied. There was no purchase or disposal of non-current
assets during the year.
(ix) The accrued expenses of $180 should have been prepaid expenses.
(x) The firm had $11,250 in wages and salaries outstanding as at 31 March 2010 but this had not been recorded.
Required:
(a)
Prepare the journal entries to correct the above errors. (Narrations are not required.)
21
(b)
Calculate the net profit after adjustments have been made.
(c)
Prepare a statement to ascertain the amount of net current assets as at 31 March 2010.
(Calculations to the nearest dollar)
Journal
Details
Dr
(i) Inventory [375 × ($10.8 – $1.8)]
Profit and loss ─ Closing inventory
(ii) Profit and loss
Allowance for doubtful accounts ($6,225 × 8%)
Allowance for discounts allowed [($6,225 – $498) × 2%]
(iii) Accumulated depreciation: Plant and machinery (W1)
Profit and loss ─ Depreciation
Accumulated depreciation: Motor vehicles (W2)
Profit and loss ─ Depreciation
(iv) Accrued expense
Prepaid expense
Profit and loss
(v) Profit and loss
Accrued expenses
(W1) Plant and machinery: Depreciation rate =
$12,000
 100% = 10%
$120,000
Under the reducing-balance method, the depreciation charge for the year
= [$120,000 – ($30,000 – $12,000)]  10% = $10,200
 Depreciation overstated = $12,000 – $10,200 = $1,800
(W2) Motor vehicles: Depreciation rate =
$22,500
 100% = 20%
$112,500
Under the reducing-balance method, the depreciation charge for the year
= [$112,500 – ($52,500 – $22,500)]  20% = $16,500
 Depreciation overstated = $22,500 – $16,500 = $6,000
22
$
3,375
Cr
$
3,375
613
498
115
1,800
1,800
6,000
6,000
180
180
360
11,250
11,250
23