Unit 4C
CORRECTION OF
ERRORS
Errors not revealed by the Trial Balance
The Trial Balance will not reveal any errors
which have been made in both accounts
involved in the double entry or where the
same error is made in a debit and a credit
account
The Trial Balance will balance but it is
concealing errors which have been made
Errors not revealed by the Trial Balance
When a Trial Balance balances it does not mean there are
no mistakes
A document may have been misplaced and the transaction
was never entered at all
This is known as an error of OMISSION ie it was missed
out completely
To correct an error of OMISSION simply enter the
transaction in the ledger as you should have done
Example – An invoice from T Brown for £100 of goods
and £17.50 VAT was omitted from the books
Solution – Debit Purchases £100, Debit VAT £17.50
Credit T Brown £117.50
Another error not revealed by the Trial Balance
A Trial Balance will still balance even when you
made entries in the wrong customer’s account
This is an error of COMMISSION
Example – P Smith paid us a cheque for £200
This was entered in B Smith’s account by mistake
Solution – Credit P Smith A/c £200 (as you should
have done) and Debit B Smith A/c £200 (to take
out the error in B Smith’s account)
Another error not revealed by the Trial Balance
When you make an entry in the wrong CLASS of
account this is an error of PRINCIPLE
Example – The purchase of spare parts for Motor
Vehicles was entered in the Motor Vehicles Account
instead of Motor Vehicle Expenses Account
Solution – Credit the Motor Vehicles A/c (to remove
it) and Debit the Motor Vehicle Expenses A/c
(to enter where it belongs)
Another error not revealed by the Trial Balance
Two wrongs don’t make a right so when 2
separate errors cancel each other out, the
Trial Balance will balance but the errors need
to be sorted.
These are referred to as COMPENSATING
errors.
Example – Both Purchases and Sales A/c s
were overstated/overcast/overadded by £500
Solution – Credit Purchases A/c £500 and
Debit Sales A/c £500 (this will restore both
balances to the correct figure)
Another error not revealed by the Trial Balance
When the wrong figure was taken from the
document and entered throughout the
accounts, the Trial Balance will still balance
This is an error of ORIGINAL ENTRY
Example – A cheque from ABC Co for £200
was entered throughout as £20
Solution – Debit Bank A/c £180 and Credit
ABC Co A/c £180 (this restores both
accounts to the correct value)
Another error not revealed by the Trial Balance
When the correct accounts are used but the
double entry in them is the wrong way round
This is known as a COMPLETE REVERSAL
Example – Wages of £300 paid by cheque was
Debited in the bank and Credited in Wages
Solution – Debit Wages A/c £600 (£300 to undo
the wrong credit entry and £300 to enter
correctly) and Credit Bank A/c £600 (£300 to
removed wrong debit entry and £300 to enter
correctly)
Now - Errors revealed by the Trial Balance
Errors which cause the Trial Balance to fail to
balance are errors which affect only one
account involved in the double entry
We need to make use of an extra ledger
account called a Suspense Account in order
to correct these types of errors
Errors revealed by the Trial Balance
When you cannot get the Trial Balance totals
to agree:
Make an entry called ‘Suspense Account’ in
the Trial Balance and enter the amount in
whichever column makes the totals agree
Now open up a Suspense Account in the
ledger for that amount
When the errors are found and corrected, the
Suspense Account balance will be reduced
to zero
See the following example for how it works
Using the Suspense Account
E COHAN'S TRIAL BALANCE AS AT 31 MARCH 2006
E COHAN’S LEDGER
Debit
Credit
Capital at 1 April 2005
8920 Suspense Account
Motor Vehicles
22,500
Dr
Cr
Bal
Sales
93000
Balance
1575
1575 Dr
Purchases
50500
Heating and Lighting
2000
Wages
12050
Rent and Rates
3800
Bank
4275
Debtors
9300
Creditors
4000
VAT
80
Suspense Account
1575
104425 106000
106000
Using the Suspense Account
The following are then discovered:
Rent £760 was entered in Bank A/c but not in Rent & Rates A/c
Solution - Debit Rent and Rates A/c and
E COHAN’S LEDGER
Suspense Account
Details
Dr
Cr
Balance
Rent and Rates A/c
Bal
1575(Dr)
760
815(Dr)
Using the Suspense Account
Invoice for £500 sent to A Black had been omitted
from Sales A/c only
Solution – Credit Sales A/c £500 and
E COHAN’S LEDGER
Suspense Account
Details
Dr
Balance
Rent and Rates A/c
Sales A/c
1575
760
500
Cr
Bal
1575(Dr)
815(Dr)
1315 (Dr)
Using the Suspense Account
Wages of £295 was posted to Wages A/c as £925
Solution – Credit Wages A/c £630 and
E COHAN’S LEDGER
Suspense Account
Details
Balance
Rent and Rates A/c
Sales A/c
Wages A/c
Dr
1575
760
500
630
Cr
Bal
1575(Dr)
815(Dr)
1315(Dr)
1945(Dr)
Using the Suspense Account
A second hand vehicle purchased for £1945 was correct
in the Bank A/c but not posted to Motor Vehicles A/c
Solution – Debit Motor Vehicles A/c and
E COHAN’S LEDGER
Suspense Account
Details
Dr
Balance
Rent and Rates A/c
Sales A/c
Wages A/c
Motor Vehicles A/c
1575
760
500
630
Cr
Bal
1945
1575(Dr)
815(Dr)
1315(Dr)
1945(Dr)
0