Period-End Adjustments, Corrections and Suspense
Period-end adjustments apply the accruals concept: income and expenses belong to the period in which they are earned or incurred, not the period in which cash moves. Four adjustments recur. Accruals (expense incurred but not yet invoiced) are debited to the expense and credited to accruals. Prepayments (paid in advance) are debited to prepayments and credited to the expense. Depreciation is debited to the depreciation expense and credited to accumulated depreciation. Closing inventory is debited to inventory and credited to cost of sales. Irrecoverable debts are written off against the receivable; an allowance for doubtful debts is a separate, non-cash estimate charged as an expense.
Errors fall into two groups. Those that leave the trial balance in agreement: error of principle (wrong class of account), commission (right class, wrong account), original entry (the same wrong amount in both accounts), omission (never entered at all), reversed entries and compensating errors. Those that cause a difference: a one-sided entry, an addition error in one account only, or a transposition affecting only one side. Where a difference arises, a suspense account is opened with the amount needed to make the trial balance balance, and each correction is journalised through it until it clears.
Worked example. A credit sale of £950 was entered in the sales day book as £590. Both postings carry the same wrong figure, so the trial balance still balances. Correct it with Dr Receivables £360, Cr Sales £360 - no suspense is involved.
Trap. Do not reach for the suspense account automatically. Decide first whether the trial balance was already in agreement.