Colin Forbes: a suspense account and three errors
Colin Forbes prepared a trial balance for his wholesale business at 31 December 2025. Debit totals were £486,300 and credit totals £485,100, and the difference was posted to a suspense account. Draft profit before any corrections was £64,000.
He has since found three errors:
(i) A cheque for £1,200 received from a credit customer was entered correctly in the cash book but no entry was made in the customer's account.
(ii) Motor expenses of £450, paid by cheque, were debited to the motor vehicles account.
(iii) An invoice for £2,000 of credit sales had been entered in the sales day book and the receivables ledger as £200. The goods had been despatched and their cost was already recorded in purchases.
No other errors have been found.
1. Which error(s) explain the suspense balance? Give the correcting journal entry and state the suspense balance afterwards.
Read the worked answer
Only error (i) explains it. The £1,200 credit to the customer's account is missing, so total credits are £1,200 short - exactly the £1,200 by which debits exceeded credits. The suspense account therefore carries a credit balance of £1,200.
Correction
- Dr Suspense account £1,200
- Cr Trade receivables £1,200
After posting, the suspense account is clear.
Errors (ii) and (iii) do not affect the suspense account at all. In (ii) one debit was simply replaced by another debit - the double entry is complete, only the account is wrong. In (iii) both the debit (receivables £200) and the credit (sales £200) were reduced by the same £1,800, so the trial balance still agrees. This is the essential test: a suspense balance arises only where an entry was made on one side of the ledger and not the other.
2. Correct the draft profit and state the effect of the corrections on net assets.
Read the worked answer
| Error | Effect on profit | £ |
|---|---|---|
| (i) | None - receivables and suspense are both statement of financial position items | - |
| (ii) | Motor expenses understated by £450, so profit is overstated; correction reduces profit | (450) |
| (iii) | Sales understated by £1,800, so profit is understated; correction increases profit | 1,800 |
| Net increase | 1,350 |
Revised profit = 64,000 + 1,350 = £65,350.
Net assets
- (i) Receivables fall £1,200; suspense (a credit balance within liabilities) is eliminated by a £1,200 debit - no net effect.
- (ii) Motor vehicles fall £450 and the expense rises £450 - net assets fall £450.
- (iii) Receivables and sales each rise £1,800 - net assets rise £1,800.
Overall net assets rise by £1,350, matching the profit correction. Note that (ii) is an error of principle: both accounts are debits, so the trial balance never flagged it, yet it overstates both profit and the carrying amount of a non-current asset.
3. Explain why a trial balance that balances is not evidence that the accounting records are correct, and what control would have caught error (iii).
Read the worked answer
A trial balance only proves that total debits equal total credits. It cannot detect an error that was made on both sides of the entry, or that is wholly self-cancelling. Errors that survive a balanced trial balance include: complete omission of a transaction; the same wrong amount entered on both sides (as in error (iii)); a transaction posted to the wrong account but on the correct side (error (ii)); a compensating error elsewhere; and reversal of entries wholly within one side.
Error (iii) is a one-zero error in the sales day book. What catches it is not the trial balance but a control account reconciliation: the receivables ledger control account total should be agreed to the sum of the individual customers' balances, and, more directly, the day book should be cast and cross-checked to the source documents. A sequence check of invoice numbers or an independent re-cast of the day book total before posting would have revealed an £1,800 understatement immediately. The general lesson is that internal control, not the trial balance, is what detects errors of amount and errors of account.