Correction of errors: practice questions

How to approach these questions

These questions test whether you can diagnose a mistake in the books and repair it with correct double entry. Often there is a suspense account and a revised profit calculation as well. Read each error slowly and classify it, because the class decides your method.

Some errors do not affect the trial balance. These are errors of omission, commission, principle, complete reversal, original entry and compensating errors. Both sides stay equal.

Others do unbalance the trial balance, such as a single entry, a wrong addition or an amount posted to only one account. These create a suspense account.

Decide first whether the trial balance was affected. That tells you whether the suspense account features in your correction.

Work out what was recorded, what should have been recorded, and then the journal that moves from one to the other. Write the wrong entry and the correct entry side by side. The difference is your correction.

For example, a payment of RM450 for repairs was debited to the machinery account. It should have been debited to repairs expense. Debit repairs RM450 and credit machinery RM450.

No suspense account is needed, because both entries were made, just to the wrong account. This is an error of principle, because a revenue expense was treated as a non-current asset. Seeing that stops you inventing a suspense entry.

When the trial balance did not balance, the suspense account carries the difference until each one-sided error is corrected. One side of the journal is the correct account and the other side is suspense. For example, sales of RM300 were credited to the sales account but never posted to the customer.

The debit to trade receivables was missing. So debit trade receivables RM300 and credit suspense RM300. Prepare the suspense account as a small ledger account.

Enter the original difference as the opening balance and post each correction to it. When every one-sided error is cleared, suspense should be nil. If it is not, an error is missed or on the wrong side.

Many questions also ask for a statement of corrected profit. That is a separate skill. Only errors that touch income or expense accounts change profit.

Errors between two statement of financial position accounts do not. Start with the original profit. Add back expenses wrongly charged or income understated.

Deduct income overstated or expenses omitted. In the repairs example, RM450 of repairs was wrongly capitalised as machinery, so the expense was understated. Correcting it reduces profit by RM450.

Lay it out vertically, with the starting profit at the top and each adjustment labelled with a plus or minus and a reason. Show the corrected profit at the foot.

Check your work in two ways. Suspense should clear to zero once all one-sided corrections are posted. A remaining balance means a correction went the wrong way or an error was not one-sided after all.

Then ask of each error whether it truly affects profit before you include it. Keep the two tests separate.

"Does it need suspense?" depends on the trial balance. "Does it change profit?" depends on whether an income or expense account is involved.

Marks are mostly lost on these points. Putting a suspense entry into a correction where the trial balance was never affected is the biggest, and it happens with errors of commission, principle and reversal. Getting the direction wrong in the profit statement is another.

Ask what the effect on profit was originally, then reverse it. A complete reversal needs double the amount to correct, because you must cancel the wrong entry and record the right one.

So RM200 posted the wrong way needs a RM400 correction. Show journals with narratives, a tidy suspense account and a labelled profit statement.

If suspense accounts and corrected profit confuse you, one of our teachers can work through a mixed set of errors with you, one stage at a time. Book a trial class