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Journal Entries & Correction of Errors
DR CR
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1) OPENING JOURNAL ENTRIES
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a) On 1 Nov 2005, Chandra was able to provide the following information:
Assets: Premises $56 000, fixtures $ , motor vehicle $ , stock, $ 3100, debtors $ 4700, cash $ 200 Liabilities: Creditors $ 5600, bank overdraft $ 2300 Date Details Dr Cr 2005 Nov 1 Premises Fixtures Motor Vehicle Stock Debtors Cash Creditors Bank Capital 56000 19400 12500 3100 4700 200 5600 2300 88000 Assets Liabilities
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2) Purchases & sales of fixed assets
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b) On 1 Sept 2006, Chandra: purchased additional fixtures, $ 1300, on credit from Office Supplies. Date Details Dr Cr 2006 Sept 1 Fixtures Office Supplies (Purchase of Fixtures on credit) 1 300
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c) On 1 Sept 2006, Chandra: sold the motor vehicle (cost $12 500) for $ on credit to Used Vehicles Ltd. Date Details Dr Cr 2006 Sept 1 Disposal of motor vehicle Motor Vehicle Used Vehicles Ltd. (Transfer of motor vehicle to disposal account and sale of motor on credit) 12 500 7 400 Profit & Loss (Loss on disposal transferred to profit & Loss) 5 100
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3) Non-regular transactions
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d) On 30 Sept 2006, Chandra wrote off $ 50 owing by Ansari Stores as a bad debt.
Date Details Dr Cr 2006 Sept 30 Bad Debts Ansari Stores (Writing off Bad Debt) 50
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Date Details Dr Cr 2006 Oct 31 Trading Purchases 39000 31
e) At 31 October 2006, Chandra Ledger accounts include the following: Purchases for the year $ Bad debts for the year $ 190 Insurance $1500, which includes a prepayment of $ 300 Stock at 1 November 2005 $ 3100 Date Details Dr Cr 2006 Oct 31 Trading Purchases 39000 31 Profit & Loss Bad Debts 190 Prepaid Insurance Insurance 300 Insurance expense ( ) 1200 Stock 3100
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f) At 31 October 2006: Stock was valued $ 3900 Fixtures are to be depreciated by $ 2070 A provision for doubtful debts is created of $250 Date Details Dr Cr 2006 Oct Stock Trading 3900 31 Depreciation of fixtures exp Provision for depr. Of fixture 2070 Profit & Loss Depreciation of fixtures expense Doubtful Debts Exp Provision for doubtful debts 250
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4) Correction of errors
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THINKING POINT WHAT DO I DO IF I MADE A CARELESS MISTAKE IN MY MATHS PROBLEM SUM? WHAT DOES MY TEACHER DO WHEN HE MARKS A QUESTION WRONGLY? WHAT DOES THE CASHIER DO IF SHE GIVES ME THE WRONG CHANGE? WHAT DOES THE UNCLE AT THE GROCERY SHOP DO WHEN HE ADDS UP WRONGLY FOR MY GROCERIES?
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The answer is... they say sorry
AND CORRECT THE ERRORS!
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it is NEVER too late to AMEND!
To err is human and it is NEVER too late to AMEND!
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CORRECTION OF ERRORS
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OBJECTIVES 1. EXPLAIN & CORRECT ERRORS WHICH DO NOT AFFECT
THE AGREEMENT OF THE TRIAL BALANCE TOTALS. 2. EXPLAIN AND CORRECT ERRORS WHICH AFFECT THE AGREEMENT OF THE TRAIL BALANCE TOTALS BY USING A SUSPENSE ACCOUNT. 3. RE-CALCULATE PROFITS AFTER ERRORS HAVE BEEN CORRECTED. 4. REVISE THE BALANCE SHEETS TO RECTIFY THE ERRORS.
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Errors which are not shown by a trial balance
TYPES OF ERRORS Errors which are not shown by a trial balance Errors of omission Errors of commission Errors of omission of one entry Errors of principle Errors in name of debtors Or custtomers Errors of original entry Errors in name of account Compensating errors Errors in amount Complete reversal of entries Errors in one side affecting Other account in another side The accounts’ postion are reversed
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TRIAL BALANCE...ERRORS OF OMISSION
ERRORS NOT REVEALED BY TRIAL BALANCE...ERRORS OF OMISSION EXPLANATION When a transaction has been completely omitted from the books. CORRECTION By making a double-entry to record the transaction. EXAMPLE Main
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ERROR OF OMISSION - EXAMPLE
A cash payment of $2,000 for purchases has been omitted from the books. Date Details Dr Cr (a) Purchases Cash 2000 Main Journal entry
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TRIAL BALANCE...ERRORS OF COMMISSION
ERRORS NOT REVEALED BY TRIAL BALANCE...ERRORS OF COMMISSION EXPLANATION An entry has been posted to the wrong debtor’s or creditor’s name CORRECTION To reverse the entry in the wrong debtors or creditors account and to post the correct entry. EXAMPLE Main
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ERROR OF COMMISSION - EXAMPLE
A sale of $1,000 to Carrefour has been posted to Cold Storage - Causeway Point. Date Details Dr Cr (b) Carrefour Cold Storage 1000 Main Journal entry ERROR MADE CORRECTION MADE
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TRIAL BALANCE...ERRORS OF PRINCIPLE
ERRORS NOT REVEALED BY TRIAL BALANCE...ERRORS OF PRINCIPLE EXPLANATION An entry has been posted to the wrong account of a different category. CORRECTION To reverse the entry in the wrong account and to post the correct entry. EXAMPLE Main
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ERROR OF PRINCIPLE - EXAMPLE
Repairs to vehicles amounting to $3,000 has been posted to Vehicles Account. Date Details Dr Cr (c) Repairs Expense Vehicles 3000 Main Journal entry ERROR MADE CORRECTION MADE
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TRIAL BALANCE...ERRORS OF ORIGINAL ENTRY
ERRORS NOT REVEALED BY TRIAL BALANCE...ERRORS OF ORIGINAL ENTRY EXPLANATION A wrong amount is recorded in a book of original entry or a document such as an invoice and subsequently posted to the ledger accounts. CORRECTION To correct the difference in the correct and wrong amount accordingly. EXAMPLE Main
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ERROR OF ORIGINAL ENTRY - EXAMPLE
A purchase of $2,100 from Pokka Corporation Limited by Carrefour has been entered in the Purchases Journal and posted to the ledger as $2,010. Date Details Dr Cr (d) Purchases Pokka Corporation Ltd. 90 Main Journal entry ERROR MADE CORRECTION MADE
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TRIAL BALANCE... COMPENSATING ERROR
ERRORS NOT REVEALED BY TRIAL BALANCE... COMPENSATING ERROR EXPLANATION An error on the debit side is compensated by an error of equal amount on the credit side. CORRECTION To reverse the error on both debit and credit sides of the accounts concerned. EXAMPLE Main
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COMPENSATING ERROR - EXAMPLE
Rent received $340 is correctly debited to the Cash Account but posted as $350 to Rent Revenue Account. Similarly, wages paid, a sum of $590, is correctly credited to the Cash Account but posted as $600 to Wages Account. Date Details Dr Cr (e) Rent Received Wages 10 Main Journal entry ERROR MADE CORRECTION MADE
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TRIAL BALANCE... COMPLETE REVERSAL OF ENTRIES
ERRORS NOT REVEALED BY TRIAL BALANCE... COMPLETE REVERSAL OF ENTRIES EXPLANATION When recording a transaction, the debit and credit entries are reversed. CORRECTION By making the necessary posting of an amount double the amount of the original error. EXAMPLE Main
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COMPLETE REVERSAL OF ENTRIES
A payment of $700 to a creditor, Carrefour, should be debited to Carrefour’s account and credited to the Cash Account, but the entries are reversed. Date Details Dr Cr (f) Carrefour Cash 1400 Main Journal entry ERROR MADE CORRECTION MADE
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Suspense account
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TRIAL BALANCE... OMISSION OF ONE ENTRY
ERRORS REVEALED BY TRIAL BALANCE... OMISSION OF ONE ENTRY EXPLANATION Forgetting to either debit or credit one side of a transaction. CORRECTION By making the necessary posting which has been omitted against an entry in the Suspense Account. EXAMPLE Main
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ERROR OF OMISSION OF ONE ENTRY - EXAMPLE
A cash payment of $2,000 for purchases has been omitted from the Purchases Account. Purchases $ $ Cash ,000 Suspense Account $ $ Purchases ,000 Main Journal entry CORRECTION MADE
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TRIAL BALANCE... ERRORS IN CALCULATION
ERRORS REVEALED BY TRIAL BALANCE... ERRORS IN CALCULATION EXPLANATION Mistakes made in calculation. CORRECTION To account for either the overcast or undercast of figures. EXAMPLE Main
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ERRORS IN CALCULATION - EXAMPLE
A purchase of $2,100 from Pokka Corporation Limited by Carrefour has been entered in the Purchases Journal as $2,010. The amount shown on the other account is correct. Purchases $ $ Suspense Suspense Account $ $ Purchases Main Journal entry CORRECTION MADE
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TRIAL BALANCE... ERRORS IN AMOUNT
ERRORS REVEALED BY TRIAL BALANCE... ERRORS IN AMOUNT EXPLANATION The amount debited and the amount credited are different. CORRECTION To account for either the overcast or undercast of figures accordingly. EXAMPLE Main
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ERRORS IN AMOUNT - EXAMPLE
Rates paid $210 was entered correctly in the Cash Book but wrongly entered as $120 in the Rates Account. Rates Account $ $ Suspense Suspense Account $ $ Rates Account Main Journal entry CORRECTION MADE
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TRIAL BALANCE... POSTING TO WRONG SIDE OF ACCOUNT
ERRORS REVEALED BY TRIAL BALANCE... POSTING TO WRONG SIDE OF ACCOUNT EXPLANATION Causing one side of the ledger to be more than the other by twice the value of the error. CORRECTION To make the necessary adjustments against Suspense Account. EXAMPLE Main
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POSTING TO THE WRONG SIDE OF AN ACCOUNT - EXAMPLE
Discount received $100 posted to the debit side of the Discount Received Account. Suspense Account $ $ Discount Received 200 Discount Received Account $ $ Suspense Account Main Journal entry CORRECTION MADE
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P.S. The suspense account would be self-balancing when all the errors
made are detected and corrected, otherwise, it would either have a credit or debit balance when closed!
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Correcting Net Profit Figure Errors made in the accounts
would affect the figures in our final accounts. Errors that affect the Gross Profit and Net Profit figures are items that are transferred to the Trading and Profit and Loss Accounts ultimately. E.g. Sales, Rent, Commission Received etc. Errors of items found in the Balance Sheet will not affect the profit figure, instead, they will overstate or understate the assets and liabilities figures. E.g. Furniture, motor vehicles, loan, bank overdraft etc.
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Add Expenses overcast XX Revenue undercast XX XX
Statement of Corrected Net Profit $ $ Net Profit before COE ,700 Add Expenses overcast XX Revenue undercast XX XX Less Expense undercast XX Revenue overcast XX Adjusted Net Profit XX Note: Overcast means showing more than there actually is Undercast means showing less than there actually is
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HOPE YOU HAVE ENJOYED THIS TOPIC!
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