Errors and the Trial Balance The Suspense Account Basic Accounting II Errors and the Trial Balance The Suspense Account
Trial Balance Re-Cap In pairs solve the Trial balance Remember the debit and credit sides need to be equal Use the DEAD CLIC rule!
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
Errors leading to an imbalance in the Trial Balance Single Entry If 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 Error The digits in a figure are transposed or (swapped) e.g Rent for £438 has been entered as CR cash book £438 DR Rent £483
Errors leading to an imbalance in the Trial Balance Balancing Error If a ledger balance has been calculated incorrectly and then transferred onto the trial balance Omission If a balance of a ledger account is omitted from the trial balance Transfer Ledger balances are incorrectly transferred to the Trial Balance
Errors which do NOT cause an imbalance in the Trial Balance Error of Original Entry Both entries in the main ledger have been made using the wrong amount Error of Omission Entry is completely omitted from the ledger accounts Error of Reversal The amount is correct but have been posted on the wrong sides of both accounts
Errors which do NOT cause an imbalance in the Trial Balance Error of Commission The 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 Principle Similar 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.
Activity Individually Thinking of the different types of errors decide whether the error Would or Would NOT cause the trial balance to be imbalanced.
Using the Suspense Account Sometimes the trial balance will not balance When this happens the introduction of a Suspense account is used The suspense account is a temporary measure It is to be cleared once the errors are found
How it works A Suspense account balance is entered so that it does. The trial balance is balance and does not add up! £ £ Total 109,344 109,444 A Suspense account balance is entered so that it does. £ £ Suspense 100 Total 109,444 109,444
Suspense account The figure is entered into the suspense account on the side it has been entered in the TB Suspense Account Opening Bal 100
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 error Dr Cr Purchases 100 Suspense 100
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 found The aim is always to clear the suspense account Suspense Account Opening Bal 100 Purchases 100
Lets work together Complete assessment task 1.4 PA1 Complete assessment task 1.3 PA2 on your own or with a partner
Assessment style question You will be given a trial balance which does NOT balance Step 1 – Draft the trial balance (in pencil) Step 2 – Look at the journal entries that are provided in the question Step 3 – Re- Draft the Trial balance to reflect the changes - it should now balance
Journal entries The 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
Extension Activity I have put a challenging extension activity on the VLE for you to access if you would like to develop your knowledge.
Exam Preparation Log onto your AAT account We will work through the first exam scenario