Presentation on theme: "Errors and the Trial Balance The Suspense Account"— Presentation transcript:
1 Errors and the Trial Balance The Suspense Account Basic Accounting IIErrors and the Trial BalanceThe Suspense Account
2 Trial Balance Re-Cap In pairs solve the Trial balance Remember the debit and credit sides need to be equalUse the DEAD CLIC rule!
3 As we know a trial balance should always balance! Discuss with a partner reasons WHY the trial balance may not balance.Try to think of at least 3 examples
4 Errors leading to an imbalance in the Trial Balance Single EntryIf only one side of the entry has been made in the Main ledger e.g. a cash sale for £50 has been entered into the DR side of the cash book but no entry made in Sales account.Transposition ErrorThe digits in a figure are transposed or (swapped) e.g Rent for £438 has been entered as CR cash book £438 DR Rent £483
5 Errors leading to an imbalance in the Trial Balance Balancing ErrorIf a ledger balance has been calculated incorrectly and then transferred onto the trial balanceOmissionIf a balance of a ledger account is omitted from the trial balanceTransferLedger balances are incorrectly transferred to the Trial Balance
6 Errors which do NOT cause an imbalance in the Trial Balance Error of Original EntryBoth entries in the main ledger have been made using the wrong amountError of OmissionEntry is completely omitted from the ledger accountsError of ReversalThe amount is correct but have been posted on the wrong sides of both accounts
7 Errors which do NOT cause an imbalance in the Trial Balance Error of CommissionThe double entry amount is correct but has been posted to the wrong account of the same type of account e.g. £50 Telephone has been entered as Cr Cash Book Dr Electricity.Error of PrincipleSimilar to an error of commission where the amount is correct but the entry has been posted to the wrong type of account e.g computer paper posted to computer fixed asset account.
8 Activity Individually Thinking of the different types of errors decide whether the error Would or Would NOT cause the trial balance to be imbalanced.
9 Using the Suspense Account Sometimes the trial balance will not balanceWhen this happens the introduction of a Suspense account is usedThe suspense account is a temporary measureIt is to be cleared once the errors are found
10 How it works A Suspense account balance is entered so that it does. The trial balance is balance and does not add up! £ £ Total 109, ,444A Suspense account balance is entered so that it does.£ £SuspenseTotal 109, ,444
11 Suspense accountThe figure is entered into the suspense account on the side it has been entered in the TBSuspense AccountOpening Bal 100
12 Clearing the suspense account It has been discovered that cash purchases of £100 were correctly entered into the cash account but no entry was made in the purchases account.A journal is needed to correct the errorDr CrPurchasesSuspense
13 Suspense account The aim is always to clear the suspense account The figure can now be entered into the suspense account now the error has been foundThe aim is always to clear the suspense accountSuspense AccountOpening Bal 100Purchases 100
14 Lets work together Complete assessment task 1.4 PA1 Complete assessment task 1.3 PA2 on your own or with a partner
15 Assessment style question You will be given a trial balance which does NOT balanceStep 1 – Draft the trial balance (in pencil)Step 2 – Look at the journal entries that are provided in the questionStep 3 – Re- Draft the Trial balance to reflect the changes - it should now balance
16 Journal entriesThe journal is a book of PRIME ENTRY Just like the trial balance they must balance They are an instruction to what needs to be posted to the main ledger They have the name of the account and whether it will be a debit or a credit
17 Extension ActivityI have put a challenging extension activity on the VLE for you to access if you would like to develop your knowledge.
18 Exam Preparation Log onto your AAT account We will work through the first exam scenario