The Missing Voucher Entry
A small trading firm's trial balance at year-end shows total debits of Nu. 450,000 and total credits of Nu. 445,000. The accountant suspects an error. Upon investigation, she finds that a credit sale of Nu. 5,000 was recorded in the sales journal but not posted to the ledger. She also finds that a purchase return of Nu. 2,000 was correctly recorded in the returns outward journal but posted to the wrong side of the supplier's account. The firm uses a suspense account. The accountant must decide how to correct these errors and prepare the suspense account.
1. Explain why the trial balance does not agree and calculate the initial suspense account balance.
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The trial balance does not agree because of errors in posting. The credit sale of Nu. 5,000 was not posted, so the sales account (credit) is understated by Nu. 5,000. The purchase return of Nu. 2,000 was posted to the wrong side, which affects the supplier's account and the returns outward account. The difference between debits and credits is Nu. 450,000 − Nu. 445,000 = Nu. 5,000. Since credits are lower, the suspense account initially has a credit balance of Nu. 5,000 (or a debit balance of Nu. 5,000 depending on the convention used; here the suspense account is credited to balance the trial balance).
2. Show the journal entries to correct the errors and prepare the suspense account.
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Correction 1: Record the omitted posting of the credit sale: Debit Sales account Nu. 5,000; Credit Suspense account Nu. 5,000. Correction 2: The purchase return of Nu. 2,000 was posted to the wrong side of the supplier's account. It should have been debited to the supplier's account (reducing the liability). Instead, it was credited. To correct: Debit Supplier's account Nu. 4,000 (to reverse the wrong credit of Nu. 2,000 and record the correct debit of Nu. 2,000); Credit Suspense account Nu. 4,000? This is not correct because the returns outward account is correctly recorded. Actually, the error affects only the supplier's account, not the trial balance, because the wrong side posting still balances? Let me reason: a purchase return should be debited to the supplier's personal account. If it was credited, the supplier's account is understated by Nu. 4,000 (2,000 wrong credit instead of 2,000 debit). This creates a difference in the trial balance. The correction: Debit Supplier's account Nu. 4,000; Credit Suspense account Nu. 4,000. The suspense account then has a credit balance of Nu. 5,000 + Nu. 4,000 = Nu. 9,000, which is then closed.