CORRECTION
OF ERRORS
ACCN1
Student Name: ___________________
NOTES PAGE
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Correction
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A Trial Balance is a list of balances taken from the ledger accounts. It is used to check the
accuracy of the double-entry system. The double entry system should balance in order to be
successful.....BUT....sometimes mistakes happen....
Remember...
DEAD
CLIC
Expenses
Liabilities
Assets
Income
Drawings
Capital
So what happens when you make a mistake…
YOU FIX IT!!
Some errors are revealed by the Trial Balance and they are…

Mathematical Errors: Errors of addition or subtraction.

Double-Entry Errors: An entry on the debit without a corresponding entry on the credit.

Misplaced Entries: An entry entered on the incorrect side.
However some errors are not revealed by the Trial Balance:
AS
Accounting
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C
Error of Commission
O
Error of Omission
P
Error of Principle
C
Compensating Error
O
Error of Original Entry
R
Complete Reversal of Entries
Correction
of
Errors
3 |Michelle/Sal
ERRORS OF COMMISSION
This arises when the correct amount is posted to the correct side of the incorrect account. Again,
the trial balance will balance but two accounts will be incorrect.
EXAMPLE: £200 due for goods sold on credit to L. Hamilton was debited to T. Hamilton’s account.
ERRORS OF OMISSION
This is where transactions are completely omitted from the books of original entry
and are therefore omitted from the ledger accounts and from the trial balance.
EXAMPLE: Computers bought on credit from D. Maguire were not entered in the
books and as a result the two accounts, Maguire and Purchases will be incorrect but
the trial balance will still balance.
ERRORS OF PRINCIPLE
These arise when an item is posted to the incorrect type of account. Both accounts are incorrect
but the mistake will not upset the balancing of the trial balance.
EXAMPLE: A vehicle worth £30,000 was bought on credit from P O’Brien and entered into the
purchases book, instead of the vehicle’s account.
COMPENSATING ERRORS
This refers to two errors that cancel each other out. Both accounts are incorrect but the balancing
of the trial balance is not affected because the errors cancel each other out.
EXAMPLE: If you post £40 instead of £400 to the debit side of the wages account and post £40
instead of £400 to the credit side of the bank account.
ERRORS OF ORIGINAL ENTRY
Errors that were made in the books of original entry were then posted to the appropriate ledger.
Because the original entry was repeated in the ledger accounts, the trial balance will still balance
and thus the error will not be revealed. Incorrect figure posted to correct side of correct account.
EXAMPLE: A sale on credit for £800 to S. Power was entered in the sales
books as £80 and posted to the debit side of Power’s account and to the
credit side of the sales account as £80.
COMPLETE REVERSAL OF ENTRIES
This happens when the correct figures are used but entries are made on the incorrect sides of the
accounts involved.
EXAMPLE: A sale of goods (£300) to T O’Brien was entered on the credit side of T O’Brien’s
account and on the debit side of the sales account.
original figure.
The correction figure here is double the
The incorrect figure had to be cancelled and the correct figure entered on the
correct side.
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Always check the nature of the business, e.g. if it is a garage owner then motor vehicles bought or
sold are purchases or sales, whereas in a hairdressers motor vehicles are fixed assets.
Step 1:
Open T Accounts and enter the transactions as they would have been if
entered correctly, i.e. show what should have happened.
Step 2:
Open T accounts and make the entries as incorrectly entered (the error).
Step 3:
Make the corrections by entering, in the appropriate accounts, the
amounts necessary to convert the incorrect entries to the correct entries.
Using the above steps it will be easy to compare what did happen with what should have happened and
you will be able to identify what accounts need to be debited and credited to correct the mistake.
Any difference between the debit and credits sides of the accounts in question is entered into the
suspense account so that the debit and credit sides will be equal.
SUSPENSE ACCOUNTS
Errors that affect the balancing of the trial balance consist of:
Errors in figures and additions
Entering one amount on the debit side
of one ledger account and entering a
Posting only one side of the double
different amount on the credit side of
entry
another ledger
When the trial balance fails to balance, the difference between both sides is placed temporarily in an
account called a SUSPENSE ACCOUNT. It is included as an account on the trial balance and it is as a
result of this entry that the trial balance will balance.
The suspense account must be used to correct all one-sided errors, i.e. where the same amount is not
entered on both sides of the ledger and consequently not in the trial balance.
 If the total of the DEBIT COLUMN of the trial balance is smaller than the total of the credit column,
the difference is placed on the debit side of the suspense account.
A suspense account with a
debit balance will be shown as a current asset on the balance sheet.
 If the total of the CREDIT COLUMN is smaller than the total of the debit column, the difference is
placed on the credit side of the suspense account. A suspense account with a credit balance will
be shown as a current liability on the balance sheet.
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 The errors that prevented the balancing of the trial balance must be found as soon as possible
and corrected.
 When this is done the suspense account will be eliminated and all the ledger accounts will then be
correct.
EFFECTS OF ERRORS ON NET PROFIT
All errors in ledger accounts will affect either the profit and loss account or the balance sheet.
All errors in net profit will affect the capital account in the balance sheet. If an error affects
any figure in either the trading or profit and loss account, it will affect the net profit. Errors
that affect fixed assets, current assets, capital, long term liabilities or current liabilities will
affect the accuracy of the balance sheet.
Therefore when all errors have been corrected
through the journal it will be necessary to correct both the profit and loss account and the
balance sheet. To do this a statement of corrected net profit is prepared containing only
entries that affect expenses and gain.
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Correct that error…
Goods sold on credit to S Greenslade, £350, were completely omitted from the books.
Goods valued at £100, returned to Mulvey by a creditor, had not been entered in the books.
S McMahon, a debtor, was declared bankrupt, and made a first and final payment of 30 pence in the pound
in respect of the original debt of £240. No entry had been made in respect of this bad debt.
Fittings bought for £1,000 had been entered in the purchases book.
The sales book was undercast by £10,000.
A payment received from R Jones, £375, had been posted to the incorrect side of his account.
A payment to M Ryan, £272, had been entered in Ryan’s account at £722.
The total of the purchases boo, £10,290, had been posted to the credit side of the sales account as
£10,920.
A delivery van sold on credit to R Troy for £15,000 had been entered in the sales book and posted to the
incorrect side of the debtors account.
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QUESTION 1
Show the journal entries necessary to correct the following errors:
(a) A sale of goods of £678 to J Harris had been created in J Hart’s account.
(b) The purchase of a machine on credit from L Pyle for £4,390 had been completely omitted from
our books.
(c) The purchase of a machine on credit from L Pyle for £4,390 had been completely omitted from
our books.
(d) A sale of £221 to E Fitzwilliam had been entered in the books, both debit and credit as £212.
(e) Commission received £257 had been entered in error in the Sales Account.
(f) A receipt of cash from T Heath £77 had been entered on the credit side of the cash book and
the debit side of T Heath’s account.
(g) A purchase of goods £189 had been entered in error on the debit side of the Drawings account.
(h) Discounts Allowed £366 had been entered in error on the debit side of the Discounts Received
account.
QUESTION 2
The Trial Balance of Thomas Wilson balanced. However a number of errors have been found in the
book-keeping system:
(a)
Credit sale of £150 to J Rigby had not been entered in the accounts.
(b)
A payment by cheque for £125 to H Price Limited, a credit, has been recorded in the account
of H Prince.
(c)
The cost of a new delivery van, £10,000, has been entered to vehicle expenses account.
(d)
Postages of £55, paid by cheque, have been entered on the wrong side of both accounts.
(e)
The totals of the purchases day book and the purchases returns day book have been undercast
by £100.
(f)
A payment for £89 from L Johnson, a debtor, has been entered in the accounts as £98.
You are to take each error in turn and:
o State the type of error
o Show the correcting journal entry
QUESTION 3
Give the journal entries needed to record the corrections of the following (narratives are not required).
(a)
Extra capital of £10,000 paid into the bank has been credited to Sales account.
(b)
Goods take for own use £700 had been debited to General Expenses.
(c)
Private insurance for £89 had been debited to Insurance account.
(d)
A purchase of goods from C Kelly £857 had been entered in the books as £587.
(e)
Cash banked £390 had been credited to the bank column and debited to the cash column in
the cash book.
(f)
Cash drawings of £400 had been credited to the bank column of the cash book.
(g)
Returns inwards £168 from M McCarthy had been entered in error in J Charlton’s account.
(h)
A sale of a motor van £1,000 has been credited to Motor Expenses.
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QUESTION 4
Petra Fox has produced a Trial Balance and drawn up the Final Accounts for the year ended 31
December 2010. The debit side of the Trial Balance exceeded the credit side by £1570. A Suspense
Account was opened for the amount. The following errors have been discovered.
(i)
The Purchase Journal had been overcast by £300.
(ii)
Discount received of £500 had been debited to Discount Allowed.
(iii)
A sale on credit to R Alihan of £320 had been correctly entered in the account of R Alihan but
no entry had been made in the Sales Account.
(iv)
Bank charges of £50 entered correctly in the Cash Book had not been entered in the General
Ledger.
You are required to:
(a)
Explain how the opening Suspense Account balance would be treated in the draft final
accounts of Petra Fox. (2m)
(b)
Journal entries to correct each of the above errors. (Narratives are not required). (11m)
(c)
The Suspense Account to correct the above errors. (6m)
(d)
The net profit figure originally calculated for the year ended 31 December 2010 was £12,000.
Calculate the revised net profit figure. (5m)
Total Marks: 24
QUESTION 5
M.Fogarty’s Trial Balance failed to agree and he entered the difference into a Suspense Account.
On examination of the books, the following errors were revealed:
(i)
Goods previously purchased from a creditor for £250 were returned. This return had not been
entered in the books.
(ii)
Interest paid £150 had been treated as interest received.
(iii)
Goods sold on credit to K.Jones £750, had been posted to the account of H.Jones.
(iv)
The total of the Sales Returns Book £1,650 had been posted to the Sales Returns Account as
£6,150.
(v)
The owner had given stock £1,000 to his son as a gift. This was not recorded in the books.
(vi)
Equipment purchased on credit from M&S Suppliers £6,000, was entered in the Purchases
Book and debited to M&S Suppliers Ltd. Account.
You are required to:
(a)
Journalise the necessary corrections.
(b)
Prepare a Statement of Corrected Net Profit if net profit as per account is £17,500.
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QUESTION 6
The trial balance of F. Quinn failed to agree on 31/12/2005 and the difference was entered in a
suspense account. On examination of the books the following errors were revealed:
(i)
The purchases day book had been over added by £1,100.
(i)
The total of the sales day book £198,000 had been posted to the sales account as £189,000.
(ii)
Goods taken by Quinn for private use to the value of £950 had not been recorded in the
books.
(iii)
Discount allowed to a debtor £200 had been recorded on the credit side of the Discount
Account as £210.
(v)
Interest paid £65 had been entered on the incorrect side of the Interest Account.
You are required to:
(a)
Journalise the necessary corrections.
(b)
Prepare a Statement of Corrected Net Profit if net profit as per account is £34,100.
QUESTION 6 ANSWER
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Correction
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10 | M i c h e l l e / S a l