1. © Hodder Education 2008 Errors

2. © Hodder Education 2008 Introduction Two types of error can be made by the book-keeper: 1.Errors which do not affect the trial balance totals 2.Errors which do affect the trial balance totals.

3. © Hodder Education 2008 Examiner’s tip When correcting errors, ask three questions: 1.What entries have been made? 2.What entries should have been made? 3.What entries must be made to correct the error?

4. © Hodder Education 2008 (1) Omission: No double entry for the transaction was made in the ledger, e.g. a sale on credit to L Grant for £900 is not recorded in the ledger. Correction: Dr Cr £ £ L Grant 900 Sales 900 Errors which do affect the trial balance totals

5. © Hodder Education 2008 (1) Commission: An entry is made in the wrong personal account, e.g. a purchase on credit from L Smith for £1200 is recorded in the account of P Smith. Correction: Dr Cr £ £ P Smith 1200 L Smith 1200 Errors which do not affect the trial balance totals

6. © Hodder Education 2008 (2) Principle: A fundamental error when an entry is made in the wrong account, e.g. the purchase of a motor van, £15,000, is recorded as a debit to motor expenses. Correction: Dr Cr £ £ Motor vans 15,000 Motor expenses 15,000 Errors which do not affect the trial balance totals

7. © Hodder Education 2008 (3) Compensating: Errors are made in the ledger which will cancel each other out, e.g. a business has overcast both the purchases and sales accounts by the amount of £500. Correction: Dr Cr £ £ Sales account 500 Purchases account 500 Errors which do not affect the trial balance totals

8. © Hodder Education 2008 (4) Original entry: A transaction is recorded as the incorrect amount in the journals and posted to the ledger for the incorrect amount, e.g. a sale on credit to L Patel for £600 is recorded in the sales journal as £60 and posted to the ledger. Correction: Dr Cr £ £ L Patel540 Sales account 540 Errors which do not affect the trial balance totals

9. © Hodder Education 2008 (5) Complete reversal: When both entries for a transaction are reversed, e.g. a payment to R Taylor by cheque for £1000 was entered Debit – bank account – £1000 Credit – R Taylor – £1000 Correction: Dr Cr £ £ R Taylor2000 Bank 2000 Errors which do not affect the trial balance totals

10. © Hodder Education 2008 Errors which do affect the trial balance totals   Errors can be made which will result in one side of the trial balance being different from the other side.   The accounting equation does not hold true.   A suspense account will be required.

11. © Hodder Education 2008 The suspense account   If the trial balance does not agree, then a suspense account should be opened for the difference. The trial balance will now be equal.   The errors must be found and corrected through the suspense account.   The balance on the suspense account must be cleared.

12. © Hodder Education 2008 Example Debits: £50,000Credits: £49,000 Motor expenses of £1000 have been debited to the motor expenses, but no credit entry has been made in the cash book. Suspense account Cash book1000 Bal b/d 1000 1000

13. © Hodder Education 2008 (2) Single entry: Only one entry is made in the ledger, e.g. a payment by cheque for postage stamps for £60 is recorded in the cash book but no entry is made to postage expenses. Correction: Dr Cr £ £ Postage expenses 60 Suspense account 60 Errors which do affect the trial balance totals

14. © Hodder Education 2008 Errors which do affect the trial balance totals (3) Overcasting and undercasting of accounts: John Bridge Bal b/d500 Bank 2000 Sales3000 Bal c/d 25003500 Bal b/d2500 cont’d

15. © Hodder Education 2008 cont’d The account of John Bridge is over cast by £1000 because the balance brought down should be £1500, not £2500. The debit side will be over cast by £1000 on the trial balance. A journal entry must be made to correct the error Correction: Dr Cr £ £ Suspense account 1000 John Bridge 1000

16. © Hodder Education 2008 (4) An income transaction could be recorded as an expense or an expense as an income transaction, e.g. discount allowed of £500 is posted to the credit of discount received. Correction: Dr Cr £ £ Discount allowed 500 Discount received 500 Suspense account 1000 Errors which do affect the trial balance totals