1. CORRECTING ERRORS Learning Objectives Identify types of errors
Detect the errors and do the correcting journal entry
Function of Suspense Account
Prepare Statement of Adjusted Net Profit and Adjusted Balance Sheet

2. Why A Balanced Trial Balance maybe not free from errors ?
Tangible Errors
Intangible Errors

3. Intangible Errors Errors of Omission Errors of Posting
Errors of Original Entry
Compensating Errors
Errors of Reversal

4. Errors of Omission – Transaction not yet recorded in any record
Eg: A payment of RM1,000 was made to creditor Ar Ltd by cheque. This transaction was not recorded yet.
Correcting Journal Entry :
Dr Creditor – Ar Ltd
1,000
CR Bank

5. Errors of Posting-
amount debited or credited is correct, but recorded in the wrong a/c
Eg : Credit sales of RM500 to Pollin was posted to Polly
Correcting Journal Entry :
Dr Pollin
500
CR Polly

6. Errors of Original Entry
Wrong amount was recorded, causing posting entry also incorrect
Eg : Credit purchase of RM353 from Bestari Ltd was recorded in purchase journal as RM335
Correcting Journal Entry :
Dr Purchase 18
CR Creditor-Bestari

7. Compensating Errors
Errors in debit entry was balanced by errros in credit entry
Eg : Commission received RM650 was posted as RM560 and renatl for RM1,190 was debited as RM1,100
Correcting Journal Entry :
Dr Rental expenses 90
CR Commission received

8. Errors of Reversal
Correct accounts were used, but was recorded on the opposite side.
Eg : Cash purchase RM1,500 was debited to Cash A/c and credited to Purchase A/c
Correcting Journal Entry :
Dr Purchase
3,000
CR Cash

9. Tangible Errors
* When does tangible errors happened ? * A suspense a/c will be created temporarily * Suspense A/c – debit side ( Balance Sheet – Asset) * Suspense A/c – credit side ( Balance Sheet – Liab.)

10. Types of Tangible Errors
* Incomplete Double Entry *Wrong Posting *Different amount were debited and credited * Transaction recorded by two debit entries or vice versa

11. Incomplete Double Entry
Only one entry recorded
Eg : Cash sales RM200 was only debited to Cash A/c
Correcting Journal Entry :
Dr Suspense
200
CR Sales

12. Wrong Posting
Eg : Sales journal of RM690 was wrongly calculated as RM960 and this wrong amount was posted to sales a/c. Debtors a/c was correctly recorded.
Correcting Journal Entry :
Dr Sales
270
CR Suspense

13. Different amount were debited and credited
Eg : Wages of RM1,130 was correctly recorded in Cash Book but wrongly recorded in Wages a/c as RM1,100
Correcting Journal Entry :
Dr Wages 30
CR Suspense

14. Transaction recorded by two debit entries or vice versa
Eg : Purchase of RM1,380 was credited to Purchase a/c and Creditors a/c
Correcting Journal Entry :
Dr Purchase (1,380+1,380)
2,760
CR Suspense
How this happen?

15. Effect of Errors On Profit Or Loss
In Trading A/c
Effects to Gross Profit/Net Profit
* Expenses
* Revenue
In P&L
Effects Net Profit
In Balance Sheet
No effects to Gross/Net Profit

16. REFER TO EXAMPLE 9.12
PAGE 248

17. Trading account: Let’s recall… Background knowledge
Sales - Cost of good sold = Gross Profit
Sales - (Opening stock + Purchases – Closing stock) = Gross Profit
Sales - Opening stock - Purchases + Closing stock = Gross Profit
Let’s recall…
Background knowledge

18. Action required on the profit Action required on the balance sheet
Example of errors
Action required on the profit
Action required on the balance sheet
Purchases undercast
Subtract -
Purchases overcast
Add
Sales undercast
Sales overcast
Income undercast
Income overcast
Expenses undercast
Expenses overcast

19. Action required on the profit Action required on the balance sheet
Example of errors
Action required on the profit
Action required on the balance sheet
Opening stock undervalued
Subtract -
Opening stock overvalued
Add
Closing stock undervalued
Increase closing stock
Closing stock overvalued
Decrease closing stock

20. Action required on the profit Action required on the balance sheet
Example of errors
Action required on the profit
Action required on the balance sheet
Prepayments of expenses omitted
Add
Increase prepayments (current assets)
Accruals of expenses omitted
Subtract
Increase accruals (current liabilities)
Fixed/current assets undervalued -
Increase fixed/ current asset
Liabilities understated
Increase liabilities