Fenwick Garden Services: clearing a £340 suspense account
Extracting the trial balance of Fenwick Garden Services at 31 March, the bookkeeper found the credit column exceeded the debit column by £340 and opened a suspense account with that credit balance. The following were then found:
- A purchase invoice of £190 was debited to purchases but never posted to the purchase ledger control account.
- A cheque for motor expenses of £450 was entered in the cash book as £540; the motor expenses account was correctly debited with £450.
- A receipt of £240 from a credit customer was entered in the cash book but not posted to the sales ledger control account.
- A sale of £210 to J Patel was entered in K Patel's account.
- A van repair of £320 was debited to the motor vehicles account.
- A credit sale of £480 was omitted from the sales day book entirely.
1. Prepare the suspense account, showing the correcting entries for items 1 to 3, and state the closing balance. Give the double entry for each.
Read the worked answer
Suspense account
| Debit | £ | Credit | £ |
|---|---|---|---|
| Purchase ledger control (1) | 190 | Balance b/d | 340 |
| Sales ledger control (3) | 240 | Bank (2) | 90 |
| Total | 430 | Total | 430 |
Closing balance: nil - the suspense account is cleared.
Double entries
- Dr Suspense £190, Cr Purchase ledger control £190. (The credit to the control account was missing, so the trial balance had gained a credit; the suspense account carried the credit.)
- Dr Bank £90, Cr Suspense £90. (The cash book was credited with £540 instead of £450, overstating credits by £90; the bank balance must rise by £90.)
- Dr Suspense £240, Cr Sales ledger control £240, and credit the customer's individual account in the sales ledger. (The credit was missing from both the control account and the ledger.)
Note that the £340 opening balance was a credit, because the credit column of the trial balance was the larger - this is the point candidates most often reverse.
2. For items 4, 5 and 6, state whether each affects the suspense account, giving the correcting journal for each and your reason.
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Item 4 - sale of £210 entered in K Patel's account instead of J Patel's. Does not affect suspense. Both debits sit inside the sales ledger, so the control account and the trial balance are untouched. Journal: Dr K Patel £210, Cr J Patel £210 - a memorandum correction in the ledger only. This is an error of commission. It will make the list of balances disagree with the control account if only one side is corrected, so correct both.
Item 5 - van repair of £320 debited to motor vehicles. Does not affect suspense. The entry is complete and equal on both sides; only the account is wrong. Journal: Dr Repairs £320, Cr Motor vehicles £320. This is an error of principle - capital expenditure recorded for what is revenue expenditure.
Item 6 - credit sale of £480 omitted from the sales day book. Does not affect suspense. Nothing at all was posted, so debits and credits are equally short; the trial balance still balances. Journal: Dr Sales ledger control £480, Cr Sales £480, and enter the invoice in the customer's account. This is an error of omission - and it is the most dangerous of the three, because nothing in the trial balance will ever reveal it. Only a control account reconciliation or a document check will.
The test: suspense is affected only when one side of a double entry is missing or misstated.
3. Calculate the net effect of all six items on the reported profit for the year and state whether profit is under- or overstated. Ignore tax.
Read the worked answer
Take each item and ask: does it change an income or expense figure?
| Item | Profit effect | £ |
|---|---|---|
| 1 Purchase not credited to control account | Purchases already correctly debited - no effect | 0 |
| 2 Motor expenses correctly debited, bank wrong | Expense right, balance sheet wrong - no effect | 0 |
| 3 Receipt not posted to control account | Balance sheet only - no effect | 0 |
| 4 Sale in the wrong customer's account | Sales total unchanged - no effect | 0 |
| 5 Repair capitalised | Repairs understated, profit overstated | +320 |
| 6 Sale omitted entirely | Sales understated, profit understated | (480) |
| Net | (160) |
Profit is understated by £160.
Two points worth stating explicitly in an exam answer:
- Item 5 also overstates non-current assets by £320 and will overstate depreciation in future years; the correction is Dr Repairs £320, Cr Motor vehicles £320.
- Item 2 is the trap. It disturbs the suspense account but leaves profit alone, because the expense account was right and only the bank figure was wrong. Candidates who assume 'every suspense error hits profit' will lose marks here.