Harlow Joinery: Which Errors a Suspense Account Can Fix
At 31 March the trial balance of Harlow Joinery shows debits of £61,340 and credits of £61,465. The £125 difference was placed in a suspense account. Investigating, the bookkeeper finds four errors: (i) a purchase return of £72 was correctly entered in the purchase returns day book but posted to the purchase returns account as £27; (ii) rent of £170 paid by cheque was entered in the cash book but never posted to the rent account; (iii) a new delivery van costing £14,000 was debited to motor expenses; (iv) a sales invoice for £260 was never posted to either the sales account or the customer's account. The owner wants all four corrected "through suspense" so the account nets to nothing quickly.
1. Which of the four errors caused the trial balance to disagree, and in which direction? Justify each answer.
Read the worked answer
Only (i) and (ii) caused the difference.
- (i) Purchase return posted as £27 instead of £72. A credit of £72 was needed; only £27 was made, so credits are short by £45. This pushes the credits down relative to debits.
- (ii) Rent posted to the cash book only. The debit of £170 to the rent account is missing, so debits are short by £170.
Net effect: debits short by £170, credits short by £45 → credits exceed debits by £125, exactly the suspense balance. ✓
The other two cannot affect the trial balance:
- (iii) is an error of principle - a complete double entry (Dr Motor expenses £14,000 / Cr Bank or Payables £14,000), so debits still equal credits. Wrong account, right arithmetic.
- (iv) is an error of complete omission - nothing was posted at all, so both sides are equally short. Equality is preserved.
This is why the owner's plan is unsafe: routing (iii) and (iv) through suspense would push the suspense account away from nil, not towards it.
2. Show the correcting journals and the suspense account, and prove that the suspense balance clears.
Read the worked answer
Journals
| Dr £ | Cr £ | |
|---|---|---|
| (i) Dr Suspense / Cr Purchase returns | 45 | 45 |
| (ii) Dr Rent / Cr Suspense | 170 | 170 |
(£72 − £27 = £45 for the transposition; £170 for the missing posting.)
Suspense account
| Debit | £ | Credit | £ |
|---|---|---|---|
| Balance b/d | 125 | Correction (ii) | 170 |
| Correction (i) | 45 | ||
| Total | 170 | Total | 170 |
The account clears to nil exactly, which confirms the diagnosis. If any part of the £125 were left over, it would mean an error had not yet been found and further investigation would be required.
Note that (iii) and (iv) are corrected by ordinary journals that never touch suspense: (iii) Dr Motor vehicles £14,000 / Cr Motor expenses £14,000 (iv) Dr Receivables £260 / Cr Sales £260
3. Explain the effect of errors (iii) and (iv) on profit and on the statement of financial position, and why they still matter even though the trial balance agreed.
Read the worked answer
Error (iii) - van debited to motor expenses
- Profit is understated by £14,000, because a capital cost has been charged as a running expense.
- Non-current assets are understated by £14,000; there is a van in use that is not on the statement of financial position.
- If depreciation is charged on motor expenses, the current year's charge is also wrong.
Error (iv) - invoice completely omitted
- Sales and profit are understated by £260.
- Trade receivables are understated by £260, and the customer may never be invoiced or chased, so the cash may never arrive.
Why it matters A trial balance that agrees proves only that the arithmetic of double entry was obeyed. It says nothing about whether the entries were materially right. Errors (iii) and (iv) distort profit, the asset base and the amount owed by customers - and (iii) is large enough to change how the business looks to a lender or to HMRC. That is why the ledger must be reviewed for errors of principle and omission, not just balanced.