1. Objectives for today’s lesson Recap from last weeks lesson - journals Recap from last weeks lesson - journals Understand different types of errors: Understand different types of errors: 1) Errors not shown by a trial balance 1) Errors not shown by a trial balance 2) Errors shown by a trial balance 2) Errors shown by a trial balance Understand what a suspense account is and what it is used for Understand what a suspense account is and what it is used for That’s it we have learnt all the topics and can now start looking at mock exam papers That’s it we have learnt all the topics and can now start looking at mock exam papers

2. Trial Balance If a trial balance ‘balances’, this doesn’t necessarily mean that the accounts are correct If a trial balance ‘balances’, this doesn’t necessarily mean that the accounts are correct

3. Ways to avoid errors, or ways to reveal them sooner Ensure that just one person isn’t responsible for all areas of the accounts Ensure that just one person isn’t responsible for all areas of the accounts Use control accounts Use control accounts Use a computer accounting program Use a computer accounting program Check statements received from suppliers against the accounting records Check statements received from suppliers against the accounting records Check bank statements and prepare bank reconciliation statements Check bank statements and prepare bank reconciliation statements Send regular statements to customers so that they can contact you if there is a discrepancy Send regular statements to customers so that they can contact you if there is a discrepancy Extract a trial balance at regular intervals Extract a trial balance at regular intervals Check cash and petty cash balances against the amount of cash held in the business Check cash and petty cash balances against the amount of cash held in the business

4. Despite taking steps to reduce errors, errors may still occur Lets look at errors not shown by a trial balance Lets look at errors not shown by a trial balance There are six types of errors not shown by a trial balance There are six types of errors not shown by a trial balance

5. Reversal of entries – where a transaction has posted the wrong way round. For example, a payment has been debited in the cash account and credited in an expense account Compensating errors – two accounts have incorrect balances but the errors cancel out so that the trial balance balances. For example, a sales invoice for £100 has been credited in the sales a/c as £110 and a purchase invoice for £1,000 has been debited in the purchases a/c as £1,010 Duplicated entry – transactions have been entered more than once Error of omission – transaction not entered at all Error of commission – amount entered in a wrong account of the same type Errors not revealed by a trial balance Error of original entry – both the debit and credit are based on an incorrect amount. Often caused by transposing the digits e.g. £975  £795 Error of principle - amount entered in the wrong type of account e.g. an expense entered in an asset account

6. When dealing with a question regarding journals, the best thing to do is to draw the T accounts and enter the transaction, then have a go at entering the correct transaction When dealing with a question regarding journals, the best thing to do is to draw the T accounts and enter the transaction, then have a go at entering the correct transaction

7. Correction of errors shown by a trial balance, using a suspense account There are also six types of errors which are revealed by a trial balance: There are also six types of errors which are revealed by a trial balance: 1) Calculation errors in the trial balance 1) Calculation errors in the trial balance 2) Errors when transferring balances to the trial balance 2) Errors when transferring balances to the trial balance 3) Omission of a general ledger account in the trial balance 3) Omission of a general ledger account in the trial balance 4) Single entry transactions 4) Single entry transactions 5) Recording two debits or two credits for a transaction 5) Recording two debits or two credits for a transaction 6) Recording different amounts for the debit and credit entries 6) Recording different amounts for the debit and credit entries

8. When errors are shown, the trial balance is ‘balanced’ by recording the difference in a suspense account When errors are shown, the trial balance is ‘balanced’ by recording the difference in a suspense account See the case study on page 206 See the case study on page 206