Correction of Errors
one approach
Gabrielle Moran
17th April 2010
Sequence of topics
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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
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Departmental
CVP
Cash Flow
Product Costing
Ratio Analysis
Budgeting
Published
Tabulars
Double Entry
Accounts
Asset
Purpose
Record 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
Record what the firm owes.
Liability
e.g. Loan A/C, Bank Overdraft A/C, Creditors A/C
Record the firm’s day to day running expenses.
Expense
e.g. Wages A/C,, Insurance A/C, Purchases A/C
Record day to day income earned by the firm
Revenue
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 Questions
Thus with every transaction you come across you
need to decide:
1.
2.
3.
4.
What are the two accounts involved?
Which type of account is each one?
Does the transaction cause an increase or decrease
in each account?
Therefore is it a Dr or Cr?
Finally make the entry in the relevant accounts
(Handout)
Recording Transactions
Stage 1
Stage 2
Stage 3
Stage 4
Source Documents
Subsidiary Books
Ledger
Double Entry
Final Accounts
Balance Sheet
Invoices
[credit purchases and
sales]
Sales Book
Purchases Book
Credit Notes
Sales Returns Book
Purchases Returns Book
Cheque Payments
Cheque Payments Book
Receipts
Anything Else
Cash Receipts Book
General Journal
Post these
transactions
using
Double Entry
Rules
Transfer
from the
Ledger to
ascertain
Profit for the
Year and the
Net Worth of
the Company
at a point in
time
Subsidiary Books
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Source documents
List
Reduce entries in accounts in nominal ledger
(Handout)
Trial Balance
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Arithmetical check on double entry before
preparation of Final Accounts and Balance Sheet
Obvious there are errors
Hidden errors
Material amounts
Minor discrepancies
Suspense
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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!)
Errors
Don’t
show up
Original
Entry
Omission
Compensating
Do
Commission
Principle
Reversal
show up
Half
double entry
Twice on same side
New
information
Figures
different
Totting errors
Types of Errors
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Read and Explain Pairs
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Read a little -- Talk a little
(Handout)
Approaching the Question
1.
What Happened
1.
What should have happened
2.
Correction = JOURNAL ENTRY
Journal Entries
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Transfer Suspense Items
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Highlight Profit & Loss items
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Highlight Balance Sheet items
Suspense Account
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As per Journal Entries
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Transfer balance to what buried in – follow
double entry rules
Adjusting the Profit
Debits in Journal =>
Credits in Journal =>
Increasing
expenses
or
Reducing
Revenue
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
Premises
Debtors
Bank
Creditors
Capital
Loan
(xxxxx)
Changes
New
Figure
Sample questions
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From past exam papers
Watch for
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Nature of business
Unseen items
Switching figures
English!