Correction of Errors and Suspense Accounts
Types of error
Errors include omission (transaction left out entirely), commission (right amount, wrong account of the same class), principle (wrong class, for example repairs debited to motor vehicles), original entry (wrong figure in the prime entry book), reversal (debit and credit swapped), transposition (digits swapped) and compensating errors (two errors cancel). Only errors that make total debits unequal total credits create a suspense account balance - typically one-sided entries or unequal amounts.
Suspense account
If the trial balance does not balance, open a suspense account for the difference. Correct errors by journal: for a one-sided entry, debit or credit the missing side and make the opposite entry to suspense. When all corrections are made, the suspense account should clear.
Traps
Not every correction uses suspense. Errors of principle, commission, original entry, reversal and omission are usually two-sided and leave the trial balance balanced, so they are corrected by journal between the two accounts without suspense. Do not use suspense to 'plug' a difference you have not investigated. Check whether the correction increases or reduces profit, and whether it affects the statement of financial position only.
Worked example
A rent payment of £900 was entered in the cash book only. Debits exceed credits by £900, so suspense has a £900 credit balance. Journal: Dr Rent £900, Cr Suspense £900. Suspense then clears.
Rule of thumb
Suspense is only for the imbalance - one-sided or unequal entries; two-sided errors never need it.