Errors NOT affecting trial balance agreement (six)
 Errors of commission
 Errors of principle

Errors of original entry

Errors of omission

Compensating errors

Complete reversal of entries
Correction by DOUBLE
ENTRY
Step 1 Show corrections using journal entries
Step 2 Post journal entries to relevant ledger accounts
Errors
Advanced-Level
Errors AFFECTING trial balance agreement
The following are
EXAMPLES ONLY:

Incorrect calculations in any account

Making an entry on only one account, i.e. a debit but no credit OR a credit but no debit.

Entering a different amount on the debit side from the amount on the credit side, or vice versa.
 … many other errors…
Suspense account
Enter the difference in the trial balance in the suspense account
Correction by DOUBLE
ENTRY
Step 1 Show corrections using journal entries
Step 2 Post journal entries to suspense account
AND/OR relevant ledger accounts
1

Procedure of Correction of Errors:
Advanced-Level
W HAT IS R IGHT ? 
Identify the correct double entries in correct amounts
W HAT HAS BEEN W RONG ? 
Identify the entries and amounts which are wrongly recorded.
A DJUSTMENTS
Make the appropriate adjustments.
1.
Errors of omission – where a transaction is completely omitted from the books.
Example one ~ Electricity accrued and rent prepaid amounted to $100 and $200 respectively were both omitted. In addition, stationery stock of $95 was found to be unrecorded in the final accounts.
Date Particular
Profit and Loss account – electricity
Accruals
Prepayments
Profit and Loss account – rent
Stationery stock
Profit and Loss account – stationery
Dr
100
200
95
Cr
100
200
95
Example Two ~ Trading stock of $1000 was omitted in the stock take.
Date Particular
Stock
Trading account – closing stock
Dr
1000
Cr
1000
2.
Errors of commission- a wrong account of the same class has been debited or credited although the amount is correct.
Example ~ A cheque for $40 received from J. Jordon had been posted to the account of I. Jordon. It was also found that the cheque related to a debit previously written off as irrecoverable.
Step 1: Identify the Right Entries
Bank
J. Jordon 40
Bad Debts Recovered
J. Jordon 40
J. Jordon
Bad debts Recovered 40 Bank 40
2

Step 2: Identify the Wrong Entries
Bank
I. Jordon 40
Step 3: Make Appropriate Adjustments
Date Particular
I. Jordon – debtors
J. Jordon – debtors
J. Jordon - debtors
Bad Debts Recovered
Advanced-Level
I. Jordon
Bank
Dr
40
40
Cr
40
40
40
3.
Errors of principle – where an item with correct amount has been entered in the wrong class of account.
Example one ~ A new van was purchased at $5400 for resale and this transaction had been entered in the Fixed Assets Register. The company’s policy was to depreciate at 10% on cost of the motor vehicles held at the year end.
Step 1: Identify the Right Entries
Purchases
Purchases 5,400
Bank
Purchases 5,400
Step 2: Identify the Wrong Entries
Bank
Vans
5,400
Step 3: Make Appropriate Adjustments
Date Particular
Purchases
Vans
Provision for depreciation ~ vans (overstated)
Profit and Loss Account - depreciation
Bank
Dr
Vans
5,400
540
5,400
Cr
5,400
540
3

Advanced-Level
4.
Errors of original entry – where the original figure is wrong yet the accounts involved in the double entry are correct.
Example one ~ A credit note received of $121 was wrongly treated as $212.
Step 1: Identify the Right Entries
P. Returns
Creditors
121
Purchases Returns
Creditors 121
Step 2: Identify the Wrong Entries
P. Returns
Creditors
212
Step 3: Make Appropriate Adjustments
Date
Creditors
Particular
Purchases Returns (212-121)
Purchases Returns
Creditors
Dr
91
Cr
91
212
Example two ~ Repairs in the sum of $2 750 made to a flat occupied by the owner had been charged to the firm's maintenance expenses.
Step 1: Identify the Right Entries
Cash
Drawings
2,750
Cash
Drawings 2,750
Step 2: Identify the Wrong Entries
Repairs
Maintenance expenses
2,750
Step 3: Make Appropriate Adjustments
Date Particular
Drawings
Maintenance expense
Cash
Maintenance
Dr
2,750
Cr
2,750
2,750
4

Advanced-Level
5.
Complete reversal of entries – where the correct accounts are used but each item is shown on the wrong side of the account.
Example one ~ A refund of $300 to a debtor was recorded as a receipt from him.
Step 1: Identify the Right Entries
Bank
Debtors
300
Bank
Debtors 300
Step 1: Identify the Wrong Entries
Debtors
Bank 300 Debtors 300
Bank
Step 3: Make Appropriate Adjustments
Date Particular
Debtors
Bank
Dr
600
Cr
600
Example Two ~ A rent prepaid of $100 was erroneously treated as an accrual and entered as such.
Step 1: Identify the Right Entries
Bal b/d
Rent
100
Step 2: Identify the Wrong Entries
Rent
Bal b/d 100
Step 3: Make Appropriate Adjustments
Date Particular
Accruals
Prepayments
Rent
Dr
100
100
Cr
200
5

Advanced-Level
6. Compensating errors – where errors cancel out each other so that the totals of the trial balance still agree.
Example ~ Discounts allowed has been under-totaled by $35 and an item in the sales returns day book of the same amount has not been posted to the relevant account of the customer.
Step 1: Identify the Right Entries
Discount allowed
+35
Debtors
+35
Step 2: Identify the Wrong Entries
Discount allowed
-35
Step 3: Make Appropriate Adjustments
Date Particular
Discounts allowed
Debtors
Debtors
Sales Returns
Dr
35
Cr
35
-35
1.
Errors in posting
Omission of posting ~ A payment of cheque of $146 for stationery had not been posted to the appropriate nominal account.
Date Particular Dr
146
Cr
146
Stationery
Suspense
Overstate (Understate) the amount of posting ~ A purchases of $200 from Mr. Lam was posted from purchases day book as $2000.
Date Particular Dr
1,800
Cr
1,800
Mr. Lam - creditors
Suspense
Post to the wrong side of the correct account ~ A return of $3000 from Mr. Au posted from sales returns day book to the wrong side of his account.
6

Date
Suspense
Mr. Au – debtors
Particular
Advanced-Level
Dr
6,000
Cr
6,000
Post to the wrong side of a wrong account ~ The total, $660, of the discount column on the credit side of the three-column cash book was posted to the discount allowed account.
Date Particular
Suspense
Discounts allowed
Discounts received
Dr
1,320
Cr
660
660
2.
Errors in casting
Overcast (Undercast) an account ~ the debit side of a creditor account was overcast by $60.
Date
Suspense
Creditors
Particular Dr
60
Cr
60
Overcast (Undercast) a day book ~ The purchases returns day book was overcast by $200.
Date
Purchases returns
Suspense
Particular Dr
200
Cr
200
Overcast (Undercast) the ending stock figure ~ The work sheet for the stock take at year end was overcast by $200.
Date Particular
Trading ~ closing stock
Stock
Dr
200
Cr
200
3.
Errors in the carried down/brought down of the prepayments and accruals
Example one ~ The balance brought down at the beginning of the accounting year for prepaid insurance of $200 was omitted.
Date Particular Dr
200
Cr
200
Insurance
Suspense
7

Advanced-Level
What if the above error was discovered at the year end of last year instead of the end of current year?
Date Particular
Prepayments - insurance
Suspense
Dr
200
Cr
200
Example two ~ The balance brought down at the beginning of the accounting year for accrued rent of $500 was erroneously brought down as a prepayment of rent. (No error in the balance carried down at year end of last year.)
Date Particular
Suspense (500x2)
Rent
Dr
1,000
Cr
1,000
What if the above error was discovered at the year end of last year instead of the end of current year?
Date Particular
Suspense
Prepayments – rent
Accruals – rent
Dr
1,000
Cr
500
500
4.
Errors in listing
Omission of a balance from a listing ~ A debit balance of $185 has been omitted from the schedule of debtors, the total of which has been entered in the trial balance.
Date Particular
Debtors – Trial Balance
Suspense
Dr
185
Cr
185
Place a balance on the wrong side of the trial balance ~ A bank overdraft of $1000 was listed as a debit balance in the trial balance.
Date Particular
Suspense
Bank overdraft – Trial Balance
Dr
2000
Cr
2000
8

Advanced-Level
Simple example
The following is the Trial balance of Single Ltd as at 31 March 2001:
Single Ltd
Trial balance as at 31 March 2001
Dr.
Salaries and wages
Fixtures
Bank
$
3 168
10 000
6 790
Purchases
Discount allowed
General expenses
Stock
Debtors
Drawings
Sales
Discount received
Creditors
Capital
62 400
305
595
12 490
8 120
4 520
108 388
87 050
410
5 045
17 017
Cr.
$
109 522
As the debit side does not agree with the credit side, we need to open a suspense account to make it balance.
Single Ltd
Trial balance as at 31 March 2001
Dr. Cr.
Salaries and wages
$
3 168
Fixtures
Bank
Purchases
Discount allowed
General expenses
Stock
Debtors
Drawings
Sales
Discount received
Creditors
Capital
Suspense (b.f.)
10 000
6 790
62 400
305
595
12 490
8 120
4 520
1 134
$
87 050
410
5 045
17 017
109 522 109 522
9

Advanced-Level
Suspense account
Difference per trial balance 1 134
After a detailed investigation, the accountant of Single Ltd discovered the following errors:
(a) Sales journal overcast by $350.
(b) Discounts allowed undercast by $100.
(c) Fixtures, bought for $850, have been entered in the cash book but not the fixtures account.
(d) Credit purchase of $166 was entered in the purchases journal only, but not in the creditors account.
(e) Cheque payment to a creditor of $490 had been debited to the drawings account in error.
Balance b/d
Creditors
Suspense Account
1,134
166
_
1300
Discounts allowed
Sales
Fixtures
100
350
_850
1,300
Full example
After the extraction of the balances from the books of Bland, the totals of the trial balance failed to agree. The following items have subsequently been discovered.
1.
The total, $1200, of the discounts received column in the cash book had been posted to debit side of the relevant account.
2.
An old van with a net book value of $8192 was sold at $5000. The van was purchased six years ago and the depreciation had been provided at 60% p.a. by the reducing balance method.
The sale proceed was entered as cash sales.
3.
The payment of $265 for rent had been entered correctly in the cash book but had been credited to the rent expenses account in the nominal ledger as $256.
4.
Invoices for $3000 for advertising expenses had been included in creditors when in fact they were related to the following period.
5.
$1350 worth of goods, sold to a customer but not yet delivered had been included in the ending stock. On the other hand, goods costing $2000 were sent to an agent on a ‘sale or return’ basis.
These goods had been invoiced at a gross profit margin of 20% and were included in the sales of the year irrespective of the fact that only $400 of these goods at cost had been sold to date.
6.
In arriving at the debtors figure in the trial balance an individual debtor’s balance of $1789 was incorrectly taken as $7189.
10

Advanced-Level
7.
No entry had been made in the accounts to record the receipts of a cheque for $60 from White, a supplier. The cheque was a refund relating to previous overpayment for goods supplied.
8.
The amount $200 had been paid on office stationery, but only stationery to the value of $150 had been used. It was discovered subsequently that $60 purchases of stationery was not yet paid and the unused stationery stock was omitted from the books.
9.
A sales invoice of $966 was incorrectly entered in the sales day book as $996 and subsequently posted to the respective sales ledger account as $969.
10.
An amount of $86 received from A. Blunt, a debtor, in settlement of his account had been treated as a cash sale.
You are required to:
(a) Prepare the journal entries to correct the above errors
(b) Prepare a statement to adjust the drafted profit figure of $11000.
(c) Prepare the suspense account to enter the corrections so as to restore the agreement of the trial balance.
Date
1 Suspense account
Particular
Discounts received account ($1,200x2)
Dr
2,400
Cr
2,400
2 Sales
Disposal account
Disposal account [8,192/(1-60%)
6
]
Van
Provision for depreciation (2,000,000-8192)
Disposal account
Profit and Loss account ~ Loss on disposal
Disposal account
3 Rent
Suspense account
4 Creditors
Advertising
5,000
2,000,000
1,991,808
3,192
521
3,000
5,000
2,000,000
1,991,808
3,192
521
3,000
11

5 Trading a/c
Stock
Advanced-Level
1,350
1,350
Sales (2,000-400)/80%
Debtors
Stock
Trading – closing stock
6 Suspense account
Debtors (Trial Balance)
7 Bank
Creditors – White
8 Stationery stock
Stationery
Stationery
Accruals
9 Sales account (996-969)
Suspense
Debtors
10 Sales
Debtors ~ A. Blunt
Statement for revised net profit
Net Profit before adjustment
Add: Discounts received understated (1)
Advertising overcharged (4)
Stock held by an agent on a ‘sale or return’ basis (5)
Stationery overcharged (8)
Less: Cash sales overstated (2)
2,400
3,000
1,600
110
5,000
5400
60
2,000
1,600
110
60
30
86
5400
60
2,000
1,600
110
60
27
3
86
11,000
7,110
18,110
12

Loss on disposal omitted (2)
Rent expenses understated (3) (265+256)
Stock sold but not yet delivered (5)
Sales overstated (5)
Stationery undercharged (8)
Sales overstated (9)
Cash sales overstated (10)
Net Profit after adjustment
Discounts received
Debtors
Debtors
Advanced-Level
3,192
521
1,350
2,000
60
30
86
Suspense Account
$
2,400 Balance b/d (b.f.)
5,400 Rent
3 Sales
7,803
12,239
5,871
$
7,252
521
30
7,803
Exercise one
Balance Sheet of J Craig as a 31 December 19x1
Fixtures and fitting
Stock
Debtors
Cash
12,500 Capital
5,000 Net profit for year
2,100
50 Drawings
Creditors
Suspense account
19,650
When the above balance sheet was prepared there was still a difference in the trial balance, and it was necessary to open a suspense account for the amount show.
Subsequently the following errors have been discovered:
(a) The balance of $140 on E Jackson’s account in the sales ledger bad had been brought forward as $14.
(b) The sales day book had been undercast by $386.
(c) A new cash register costing $310 had been debited to purchases account instead of fixtures and fittings.
(d) Depreciation of equipment had been entered in the profit and loss account as $1,724 instead of $1,274.
(e) Discounts allowed of $65 had been posted to the credit of discount received account.
You are required
(i) To provide journal entries necessary to correct the errors;
13
10,000
8,650
18,650
3,930
14,720
4,350
580
19,650

Advanced-Level
(ii) To produce a corrected balance sheet showing the amended balance on the suspense account.
(i)
Date a E Jackson
Suspense b Suspense
Particular
Sales (Profit and Loss) c Fixture and fitting
Purchases d Suspense
Profit and Loss ~ depreciation e Discounts received
Discounts allowed
Suspense
Dr
126
386
310
450
65
65
386
310
450
130
Cr
126
(ii)
Sales (Profit and Loss)
Profit and Loss
Suspense Account
386
450
836
Balance b/d
E Jackson
Discounts allowed
Discounts received
Balance Sheet of J Craig as a 31 December 19x1
Fixed Assets
Fixtures and fitting (12500 + 310)
Current Assets
Capital
12,810 Add: Net profit for year
(8650 + 386 + 310 –130 + 450)
Less: Drawings
Stock
Debtors (2100 + 126)
Cash
5,000
2,226 Current Liabilities
50 Creditors
20,086
10,000
9,666
19,666
3,930
15,736
4,350
20,086
14
580
126
65
65
836

Advanced-Level
Statement for revised net profit
Net Profit before adjustment
Add: Sales undercast
Purchases overcast
Depreciation overcast
Less: Discounts allowed undercast
Discounts received overcast
Net Profit after adjustment
386
310
450
65
65
8,650
1,146
9,796
130
9,666
Exercise Two
(a) An inexperienced book-keeper has drawn up a trial balance for the year ended 30 June
19X7:
Provision for doubtful debts
Bank overdraft
Dr
$
200
1,654
Cr
$
Capital
Creditors
Debtors
Discount received
Discount allowed
Drawings
Office furniture
General expenses
2,983
252
1,200
2,155
4,591
1,637
733
829
Purchases
Returns inwards
Rent and rates
Salaries
Sales
Stock
Provision for depreciation of furniture
10,923
314
2,520
2,418
364
24,938
330
16,882
__ __
25,002
Required:
(a) Draw up a ‘corrected’ trial balance, debiting or crediting any residual error to a suspense account.
(b) Further investigation of the suspense account, ascertained in (a) above, reveals the following errors:
15

Advanced-Level
(i) Goods bought from J.Jones amounting to $13 had been posted to his account as $33.
(ii) Furniture which had cost $173 had been debited to the general expense account.
(iii) An invoice from Suppliers Ltd for $370 had been omitted from the purchase account, but credited to Suppliers Ltd’s account.
(iv) Sales on credit to A. Hope Ltd for $450 had been posted to the sales account, but not to the debtors ledger.
(v) The balance on the capital account had been incorrectly brought forward in the ledger, and should have been $4,291.
(vi) An amount of $86 received from A. Blunt, a debtor, in settlement of his account had been treated as a cash sale.
(vii) Discount allowed has been undertotalled by $35.
Required:
Prepare journal entries correcting each of the above errors and write up the suspense account.
Provision for doubtful debts
Trial Balance for the year ended 30-6-19X7
Bank Overdraft
Capital
Creditors
Debtors
Discounts received
Discounts allowed
Drawings
Office furniture
Provision for depreciation ~ Furniture
General expenses
Purchases
2,983
733
1,200
2,155
829
10,923
Dr
Returns inwards
Rent and Rates
Salaries
Sales
Stock
Suspense
330
314
2,520
2,418
1,175
25,580
Cr
200
1,654
4,591
1,637
252
364
16,882
25,580
16

Advanced-Level
(b)
Date
(i) J Jone (creditors)
Particular
Suspense
To correct the error of overstate the amount of posting
(ii) Furniture
General expenses
To correct the error of principle
(iii) Purchases
Suspense
To correct the omission of posting
(iv) A Hope Ltd (debtors)
Suspense
To correct the omission of posting
(v) Capital (4591-4291)
Suspense
To correct the brought down balance of capital
(vi) Sales
A Blunt (debtors)
To correct the error of principle
(vii) Discounts allowed
Suspense
To correct the error of undercasting
370
450
173
Dr
20
86
35
300
370
450
173
Cr
20
86
35
300
(c)
19-7
30/6 Balance b/d
Suspense Acocunt
$ 19-7
1,175 30/6
1,175
J Jones
Purchases
A Hope Ltd
Capital
Discounts Allowed
20
370
450
300
35
1,175
17

Advanced-Level
Exercise Three
After completing a draft profit and loss account for the year ended 30 April 19X0 of A.B.C.
Limited the following balances remained and a suspense account entry was required for the difference which had arisen:
Fixed assets: at cost
$
60,000
$
Provision for depreciation
Ordinary share capital
Retained earnings
Stock in trade, at cost 14,000
31,000
35,000
12,000
Sales ledger control account
Purchases ledger control account
Balance at bank
Difference on balances suspense account
9,600
1,640
6,500
740
85,240 85.240
After investigation the following discoveries were made:
(a) A rent payment of $350 in March 19X0 had been debited in the sales ledger control account.
(b) Although instructed to do so, the accounts clerk had not set a debt due from B. Bell of $1,560 in the sales ledger control account against an amount due to B. Bell in the purchases ledger control account.
(c) Discounts allowed of $500 during the year ended 30 April 19X0 had not been recorded in the company’s accounts.
(d) No entry had been made for refund of $2,620 made by cheque to L. Green in March, 19X0, in respect of defective goods returned to the company. Note: The correct entries had been made previously for the return of the goods to A.B.C. Limited.
(e) The purchases day book for February 19X0 had been undercast by $300.
(f) A payment of $1,000 to K. Bloom in January 19X0 for cash purchases had been debited in the purchases ledger control account. Note: The company does not maintain a credit account with K. Bloom>
(g) No entries had been made in the company’s books for cash sales of $2,450 on 30 April 19X0 and banked on that date.
(h) No entries had been made in the company’s books for bank charges of $910 debited in the company’s bank account in December 19X9.
(i) The company’s cash book (bank debit column) had been overcast by $1,900 in March 19X0.
(j) A cheque payment of $8,640 for new fixtures and fittings in April 19X0 had not been recorded in the company’s books.
(k) A payment by cheque of $1,460 in June 19X9 for stationery had not been posted to the appropriate nominal account.
18

Advanced-Level
Required:
(a) The journal entries for items (a) – (k) above. Note: Narratives are required.
(b) The corrected list of balances at 30 April 19X0.
Date
(a) Profit and Loss ~ Rent
Sales Ledger Control
Particular
To correct the error of principle
Dr
350
Cr
350
(b) Purchases Ledger Control
Sales Ledger Control
To set-off the amount due from B. Bell
(c) Profit and Loss ~ Discounts allowed
Sales Ledger Control
To correct the error of omission
(d) Sales Ledger Control
Bank
To correct the error of omission
(e) Profit and Loss ~ Purchases
Purchases Ledger Control
To correct the error of under casting
(f) Profit and Loss ~ Purchases
Purchases Ledger Control
To correct the error of principle
(g) Bank
Profit and Loss ~ Sales
To correct the error of omission
(h) Profit and Loss ~ Bank Charges
Bank
To correct the error of omission
(i) Suspense
Bank
To correct the error of over casting
1,560
500
2,450
910
2,620
300
1,000
1,900
1,560
500
2,450
910
2,620
300
1,000
1,900
19

Date
(j) Fixture and fitting
Particular
Bank
To correct the errors of omission
(k) Profit and Loss ~ Stationery
Suspense
To correct the error of omission of posting
List of balance as at 30-4-19X0
Fixed Assets: at cost
Fixed Assets: provision for depreciation
Ordinary share capital
Retained earnings
Stock in trade, at cost
Sales ledger control
Purchases ledger control
Balance at bank (O/D)
Suspense
Advanced-Level
Dr
8,640
1,460
68,640
14,000
9,810
92,450
Cr
8,640
1,460
31,000
35,000
9,930
6,240
9,980
300
92,450
Exercise Four
Sharples and Syvret are partners in a business producing ornaments in pottery. Syvret was in charge of sales and it was agreed that she be paid a commission of 2% on sales before distribution of profits. The profit sharing ration is 2:1.
Stokes, a partly qualified accountant, kept the books. The following errors had been made and a suspense account had been opened to effect a balance on completing the draft accounts:
1.
A new van was purchased for $5,400 and this amount had been entered in the Purchases
Day Book, and charged to the Purchases Account.
2.
The new van replaced the firm’s two other vehicles costing $2,700 each which had been depreciated by 10% per annum on a reducing balance for three years and two years respectively, and which were sold for $3,600 in total, cheques for which amount had been posted to the sales account. No other entries were made in the account.
3.
Depreciation of furniture and fittings of $1,440 had been overlooked.
4.
Discount allowed of $24 had been correctly entered in personal accounts but had been treated in the general ledger as discount received.
5.
Goods returned inwards, value $360 had been entered in the general ledger correctly but had not been posted to the debtor’s personal account. Control accounts are not
20

Advanced-Level on sale or return. Only $40 of this stock at cost had been sold to date.
The gross profit is 20% of sales.
Required:
(a) Prepare journal entries necessary to correct the accounts.
(b) Produce the adjusted suspense account.
(c) Prepare a statement showing the adjustments to net profit and to partners’ shares of profit.
(a) maintained.
6.
A cheque for $40 received from J.Gillies had been posted to the account of I.Giles. The cheque related to a debt previously written off as irrecoverable.
7.
Stock costing $200 was sent from the shop in Bournemouth to Syvret’s mother in Jersey
Date Particular
1 Motor van
Profit and Loss ~ Purchases
To correct the error of principle
Profit and Loss ~ Depreciation
Provision for depreciation – motor van
To correct the error of omission
2 Profit and Loss ~ Sales
Provision for depreciation
Profit and Loss ~ Loss on disposal
Motor van
To correct the error of principle and omission
3 Profit and Loss ~ depreciation
Provision for depreciation
To correct the error of omission
4 Profit and Loss ~ Discounts Allowed
Profit and Loss ~ Discounts Received
Suspense
To correct the error of the wrong side of a wrong account
1,440
24
24
3,600
1,245
555
Dr
5,400
540
1,440
48
5,400
Cr
5,400
540
21

Advanced-Level
(b)
Date
5 Suspense
Particular
Debtors
To correct the error of omission of positng
6 I Giles - debtors
J Gillies - debtors
To correct the error of commission
J Gillies - debtors
Profit and Loss ~ Bad Debts Recovered
To enter the bad debts recovered.
7 Stock
Trading ~ Closing stock
To correct the error of omission
Profit and Loss ~ Sales
Debtors
To correct the error of omission
Debtors
Suspense Account
360 Balance b/d (Balancing fig.)
Discounts allowed
360
Discount received
160
40
40
Dr
360
200
(c)
Statement showing the adjustment to net profit
Items added to the net profit
Purchases overstated
Bad debts recovered
Closing stock understated
Less: Items deducted from net profit
$
5,400
40
160
160
40
40
Cr
360
200
$
5,600
312
24
24
360
22

Sales overstated
Loss on disposal
Discounts allowed understated
Discounts received overstated
Depreciation of furniture and fitting understated
Depreciation of motor van understated
Sales overstated
The decrease in net profit
Commission to partner (3,600 + 200) x 2% = 76
Adjustment to the share of profit –$783 + $76 = -$707
Decrease in the sharing of profit
Sharples: 707 x 2/3 = 471.33
Syvret: 707 x 1/3 = 235.67
Advanced-Level
3,600
555
24
24
1,440
540
200 6,383
(783)
Exercise Five
Wyre and Holmes
Balance Sheets as at 31 December 19-1
$ $
Fixed assets (at cost less depreciation)
Premises
Vehicles
Equipment and tools
6,000
1,090
2,480
$
Capital accounts
Wyre
Holmes
Current assets
Stock
Debotrs
Less: provision for bad debts
Prepayments
Bank and cash
233
2,339
4,526
2,106
9,570
Current accounts
Wyre (credit)
Holmes (debit)
144
1,940 8,716
18,286
Current liabilities
Creditors
Accruals
$
641
432
$
7,000
7,000 14,000
209
2,508
__128 2,636
16,845
The balance sheet of the partnership of Wyre and Holme, electrical contractors, was drawn up as shown above. The totals failed to agree and the difference was put into suspense account pending investigation. The investigation subsequently disclosed that:
23

Advanced-Level
(i) The purchase returns daybook had been correctly entered and totaled at $616 but had not been posted to the ledgers.
(ii) Discounts received, $132, had been debited to discounts allowed.
(iii) The sales account had been under-added by $1,000.
(iv) A credit sale of $147 had been debited to a customer’s account as $174.
(v) A vehicle bought originally for $700 four years ago and depreciated at 20 per cent by the straight line method on an assumed residual value of $100, had been sold as surplus to requirements for $150 but no entries, other than in the bank account, had been passed through the books.
(vi) An accrual of $56 for telephone charges had been completely omitted.
(vii) The partners’ current accounts had been credited with interest on capital at 10 per cent instead of at the agreed rate of five per cent.
(viii) A bad debt of $152 had not been written off and provision for had debts should have been maintained at 10 per cent of debtors.
(ix) Wyre’s current account had been credited with a partnership salary of $800 which should have been credited to Holmes’ current account.
(x) On one stock sheet at 31 December 19-1 a sub-total of $2,983 had been carried forward as $2,938 and another sheet had been overcast by $100.
(xi) Tools bought for $120 had been inadvertently debited to purchases.
(xii) Holmes had withdrawn, for personal use, goods to the value of $196. No entries had been made in the books.
The partners shared profits and losses as follows: Wyre 3/5, Holmes 2/5.
Required: (All workings must be shown.)
(a) Prepare a statement of adjustments to net profit for the year.
(b) Redraft the corrected balance sheet as at 31 December 19-1.
Workings:
Particular Date
(i) Creditors
Purchases returns
(ii) Suspense
Discounts allowed
Discounts received
(iii) Suspense
Trading ~ sales
Dr
616
264
1,000
Cr
616
132
132
1,000
24

Advanced-Level
(iv) Suspense
Debtors
(v) Suspense
Provision for depreciation (700x20%x4yr.)
Profit and Loss – profit on disposal
Vehicles
(vi) Telephone
Accruals – telephone
(vii) Current – Holmes
Current – Wyre
Current - Wyre
Current – Holmes
Current - Wyre
Current – Holmes
OR
(viii) Bad debts
Debtors
Provision for bad debts 233-(2,339-152-27)x10%
Profit and Loss
(ix) Current – Wyre
Current – Holmes
(x) Trading ~ Closing stock
Stock
(xi) Tools
Purchases
(xii) Drawing ~ Holmes
Purchases
152
17
800
55
120
196
350
350
70
56
27
150
560
152
17
800
55
120
196
420
280
70
700
56
27
10
25

Advanced-Level
(a)
Statement of adjustments to the net profit for the year ended 31-12-19-1
Items added to net profit $
Discounts received understated
Discounts allowed overstated
132
132
Sales understated
Profit on disposal
Decrease in provision for bad debts
Purchases overstated
1,000
10
17
120
Purchases overstated
Purchases returns understated
Less: Items deducted from net profit
Electricity understated
Closing stock overstated
Bad debts understated
Increase in net profit
Share of net profit: Wyre = $1,960 x 3/5
= $1,176
Holmes = $1,960 x 2/5
= $784
196
616 2,223
56
55
152 263
1,960
$
(b)
Fixed Assets
Premises
Vehicles (1,090 – 700 + 560)
Balance Sheet as at 31-12-19-1
$
6,000
950
$ Capital
Wyre
Holmes
Equipment and tools (2,480+120) 2,600 9,550
Current account
Current Assets
Stock (4,526-55) 4,471
Wyre (641-800+70+1,176)
Holmes
Debtors (2,339-152-27)
Less: Provision for bad debts
Prepayments
Bank & Cash
2,160
(216)
144
(-432-70+800-196+784)
Current Liabilities
1,940 8,499 Creditors (2,508-616)
Accruals (128+56)
18,049
$
7,000
$
7,000 14,000
1,087
886 1,973
1,892
184 2,076
18,049
26

Advanced-Level
Exercise Six
At the end of the financial year the totals of the trial balance of Chilford failed to agree and the difference, $213, was credited to a suspense account pending investigation.
Subsequently, the following errors were discovered:
1.
Rates, $240, paid in advance at the end of the previous year had not been brought down on the rates account as an opening balance.
2.
A new machine (cost $1100) acquired for use in the business had been debited to purchases.
3.
The sales daybook had been under-added by $500.
4.
Surplus items of machinery (held as fixed assets) had been sold at their book value of
$400 on credit and this transaction had been recorded as a normal sale in the sales book.
5.
Goods, bought from a supplier for $15, had been credited to his account as $51.
6.
Discount allowed, $9, had been correctly recorded in the cash book but had not been posted to the customer’s account.
7.
An amount of $60, owed by a customer, had been missed off he schedule of debtors balances used as the debtors figure in the trial balance.
8.
Goods returned by a credit customer had been correctly recorded in the sales return daybook as $20, but had been debited to that customer’s account.
The trial balance, before the errors were corrected, was:
Discounts allowed
Discount received
Purchases
Purchases returns
Sales
Sales returns
Carriage outwards
Wages and salaries
Stock (opening)
Heating and lighting
Rent, rates and insurance
General expenses
Buildings
Machinery
Debtors
Creditors
Bank and cash
Capital (opening)
Dr
320
41 700
1 500
4 130
23 500
19 200
7 800
5 600
6 100
10 000
9 330
8 059
5 676
4 972
64 420
Cr
410
600
72 300
27

Advanced-Level
Suspense (difference)
142 915 142 702
213
142 915 142 915
Required:
(a) Rewrite the trial balance correcting the errors.
(b) State by how much the profit or loss for the period was affected by the errors.
(c) Post the appropriate correcting entries in the suspense account in order to eliminate the balance.
Workings (the journal entries to correct the errors) :
Date
1 Rates
Suspense
2 Machinery
Purchases
3 Suspense
Sales
4 Sales
Machinery
5 Creditors (51-15)
Suspense
6 Suspense
Debtors
7 Debtors – Trial Balance
Suspense
8 Suspense
Debtors
Particular
36
400
Dr
240
1,100
500
40
9
60
36
500
400
Cr
240
1,100
60
40
9
28

Advanced-Level
(a)
Trial Balance as at the end of the financial year
Discounts allowed
Discounts received
Purchases
Purchases returns
Sales
Sales returns
Carriage outwards
Wages & salaries
Opening stock
Heating & lighting
Rent, rates and insurance
General expenses
Buildings
Machinery
Debtors
Creditors
Bank & cash
Capital (opening)
(b)
Effects on the net profit
Items added to the net profit
Purchases overstated
Sales understated
Less: Items deducted from the net profit
Rates understated
Sales overstated
Net increase in net profit
$
1,100
240
400
$
500 1,600
640
960
4,130
23,500
19,200
7,800
5,840
6,100
10,000
10,030
Dr
320
Cr
410
40,600
600
1,500
72,400
8,070
4,936
5,676
_______ __64,420
142,766 142,766
29

(c)
Advanced-Level
Sales
Debtor – discounts allowed
Debtor – discounts received
Suspense Account
$
500 Balance b/d
9 Rates
40 Creditors
Debtor
549
Exercise Seven
The first draft of the final account of Wilmot for the year ended 31 December 19-1 disclosed that capital employed was $27,053 and net profit for the year was $6,874. The books of account had, however, been written up by Wilmot’s daughter, a student, and contained a number of errors.
After a lengthy check of all the entries, the following errors were identified:
(i) Sales on credit had been over-added by $730 in the sales daybook.
(ii) A credit purchase of $450 had been debited to a supplier’s account as $540.
(iii) Some office furniture bought five years age for $300 and depreciated by $270 had been sold for $100 but no entries had been made except to record the receipt of the proceeds in the bank account.
(iv) New office equipment, $500, bought on 1 January 19-1 had been debited to the purchases account. Depreciation should have been provided at 20 per cent using the straight line method.
(v) No entry had been made for goods withdrawn by Wilmot for personal consumption,
$210.
(vi) Discounts allowed $90 had been credited to discounts received.
(vii) An accrual for power, $23, and an insurance prepayment, $90, had both been completely omitted.
Required:
(a) A statement amending the net profit and capital employed figures for each of the items (i) to
(vii) above.
(b) State by how much the draft balance sheet failed to balance.
Workings (the journal entries to correct the errors):
Particular Date
(i) Sales
Suspense
(ii) Suspense
Creditors (450+540)
Dr
730
990
Cr
730
990
30
$
213
240
36
60
549

Date
(iii) Suspense
Particular
Provision for depreciation
Office furniture
Profit and Loss Account ~ profit on disposal
(iv) Office equipment
Purchases
Profit and Loss Account ~ depreciation
Provision for depreciation
(v) Drawings
Purchases
(vi) Discounts allowed
Discounts received
Suspense
(vii) Prepayments ~ insurance
Profit and Loss ~ power expense
Accruals ~ power
Profit and Loss ~ insurance
(a)
Statement to correct the net profit
Adjustments for net profit
Add: Profit on disposal ~ Furniture
Purchases overstated – wrong debit to purchases
Purchases overstated – unrecorded drawing of goods
Overstated insurance expense
Less: Sales overstated
Provision for deprecation – equipment
Adjustments for discounts allowed & received
Accruals omitted – understated power
Advanced-Level
100
210
90
Dr
100
270
500
90
90
23
$
500
210
90
100
180
100
210
Cr
300
70
500
180
23
90
$
70
6,874
870
730
7,744
23 1,033
6,711
31

Advanced-Level
(a)
Statement of correcting the capital employed
Original capital employed at year end
Less: Decrease in net profit
Drawing
Adjusted capital employed at year end
(b)
Creditors
Disposal of office equipment
Suspense Account
$
990 Balance b/d (b.f.)
100
1,090
Sales
Discounts received
Discounts allowed
$ $
163
27,053
210 373
26,680
$
180
730
90
90
1,090
32