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Correction of Errors
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Errors Not Disclosed by the Trial Balance
Error of omission – not in the system. Error of commission – wrong account ie rent not stationery. Error of principle – wrong class of account ie expense account rather than an asset account. Error of original entry – both sides are incorrect. Reversal of entry – both sides are incorrect. Compensating errors – both sides are incorrect.
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Error of Omission Credit sales of £200 + VAT on invoice 4967 to H Jarvis has been completely omitted from the accounting system. Create the journal entry Date Details Ref Dr Cr 12 May SLCA GL 240 Sales 200 VAT Invoice 4967 omitted from the accounts.
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Enter Transactions in the Ledgers
General Ledger SLCA Sales/Vat 240 Sales SLCA 200 Sales Ledger H Jarvis Sales/VAT 240 VAT SLCA 40
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Error of Commission Credit sales of £48 including VAT on invoice 321 has been debited to the account of J Admas, rather than J Adams Ltd Create the journal entry Date Details Ref Dr Cr 12 May SLCA GL 48 Correction of error invoice 321. Debit J Adams Ltd £48 Credit J Admas £48
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Transfer the Entries to the General Ledger
Sales Ledger General Ledger J Adams Ltd J Admas 48 SLCA 48 J Admas J Adams Ltd 48
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Error of Principle Fuel at £50 has been debited to the Vehicles account rather than the Vehicle Expenses account Create the journal entry Date Details Ref Dr Cr 12 May Vehicle Expenses GL 50 Vehicles Correction on receipt number 345, debited to the incorrect account.
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Transfer the Entries to the General Ledger
Vehicles Account Vehicle Expenses 50 Vehicle Expenses Vehicles 50
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Error of Original Entry
Postages paid by cheque of £45 has been entered into the accounts as £54. Create two journal entries Date Details Ref Dr Cr 12 May Bank GL 54 Postage Remove incorrect entry, transaction £45 not £54. Date Details Ref Dr Cr 12 May Postage GL 45 Bank Recording correct entry transaction £45 not £54.
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Transfer the Entries to the General Ledger
Postage Bank 45 54 Bank Postage 54 45 Remember: REMOVE the incorrect entry then ENTER the correct entry. Do not correct the entry in one go – this will lead to chaos and confusion! Do not be tempted to alter the amount by £9 as there is no original entry for that amount.
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Reversal of Entries Payment of £50 to trade payable S Wright has been debited to the bank and credited to the PLCA. Create two journal entries Date Details Ref Dr Cr 12 May PLCA GL 50 Bank Removing incorrect entry in PLCA Date Details Ref Dr Cr 12 May PLCA GL 50 Bank Recording correct entry in PLCA & Bank.
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Transfer the Entries to the General Ledger
PLCA Bank 50 Bank PLCA 50 Remember: REMOVE the incorrect entry then ENTER the correct entry. Do not correct the entry in one go – this will lead to chaos and confusion!
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Compensating Error Rent is overcast (over added) by £100, the sales account is also overcast by £100. Create the journal entry Date Details Ref Dr Cr 12 May Sales GL 100 Rent Correction of overcast on rent and sales account
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Transfer the Entries to the General Ledger
Sales Account Rent 100 Rent Account Sales 100
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Errors Disclosed by the Trial Balance
Calculation errors in ledger accounts. Single entry transactions. Recording two debits or two credits for one transaction. Recording different amounts for debit and credit entries. Errors in transferring balances to the trial balance. Omission of a general ledger account in the trial balance Not all errors will be revealed by the trial balance, those not revealed are compensating errors where both sides will add up to the same.
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How to Deal With These Errors
Open a suspense account....
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Making the Trial Balance, Balance
Put a balancing figure on the ‘lighter’ side. Open an account called ‘Suspense’ debit or credit depending on the side of the figure in the trial balance. Make a detailed examination of the books. Note all errors in the journal. Correct all errors in the double entry system either debiting or crediting the suspense account as necessary. FINALLY....
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Ta- dah it balances!
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The Unbalanced Trial Balance
Details Debit Credit PLCA 3,500 SLCA 2,543 Bank 465 Purchases 12,537 Sales 15,698 Wages 9,470 Advertising 1,600 Capital 13931 Drawings 5,000 Telephone and internet 150 Suspense 550 Totals 32722
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On inspection of the accounts you find the following mistakes:
Amount Dr Cr Suspense 550 x On inspection of the accounts you find the following mistakes: Cash sales of £120 are missing from the Sales Account. Drawings of £500 have not been posted to the Drawings Account. The bank account is over drawn. Draw up the journal entries for these. Remember to remove any errors before entering the correct entry.
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Cash sales of £120 are missing from the Sales Account
Cash sales of £120 are missing from the Sales Account. Input the missing entry. Account Amount Dr Cr Suspense 120 X Sales Drawings of £500 hasn’t been posted to the Drawings Account. Input the missing entry. Account Amount Dr Cr Drawings 500 X Suspense The bank account is over drawn. Correct the error, input the correct entry. Account Amount Dr Cr Suspense 465 X Bank
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Draw up the general ledger entries
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Sales Account Bal b/d 15,698 Suspense 120 Bal c/d 15,818 Suspense Bal b/d 550 120
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Drawings Bal b/d 5000 Suspense 500 Bal c/d 5500 Suspense Bal b/d 550 120 Drawings 500
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Bank Bal b/d 465 Suspense Bal c/d Suspense Bal b/d 550 120 Drawings 500 Bank 465 Totals 1050 Total
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Redraft the trial balance
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The Balanced Trial Balance
Details Incorrect Entry Debit Credit PLCA 3,500 SLCA 2,543 Bank Dr: 465 465 Purchases 12,537 Sales Dr: 15,698 15,818 Wages 9,470 Advertising 1,600 Capital 13,931 Drawings Dr: £5,000 5,500 Telephone and internet 150 Totals 32,757 Incorrect entries for purely illustrative purposes.
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Questions
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Recap There are 6 types of errors:
Compensating, commission, principle, omission, reversal of entry and original entry. The trial balance might not always balance. Double check your work. Open a suspense account Find the errors Journal the corrections Re-draft the trial balance.
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Exercises
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