Naledi Stores: What the Suspense Account Really Proves
On 31 December 2024 the trial balance of Naledi Stores did not agree. Debit totals were P186,400 and credit totals P187,250, so the difference was entered in a suspense account and a draft net profit of P42,600 was calculated. Investigation in January 2025 revealed the following: (i) A credit sale of P1,900 to M. Ndlovu had been entered in the sales journal but posted to the sales account only. (ii) A cheque for P1,320 received from a debtor had been correctly entered in the cash book but not posted to the debtor's account. (iii) Repairs of P520 paid by cheque had been posted to the repairs account as P250. (iv) The sales returns journal had been overcast by P300. (v) A stationery invoice for P760 had been completely omitted from the books.
1. Prepare the suspense account, showing the opening balance and each correcting entry, and explain why the account ends with a nil balance.
Read the worked answer
The trial balance had credits exceeding debits by P850 (187,250 − 186,400), so a debit of P850 was opened in the suspense account.
Suspense account
| Dr | P | Cr | P |
|---|---|---|---|
| Difference in trial balance (b/d) | 850 | M. Ndlovu (sale not posted to the debtor) | 1,900 |
| Debtor's account (cheque 1,320 received, no credit entry made) | 1,320 | Repairs (520 posted as 250) | 270 |
| 2,170 | 2,170 |
Reasoning for each entry
- (i) Sales were credited correctly but the debtor was never debited, so total debits are short by P1,900. Correcting entry: Dr M. Ndlovu 1,900, Cr Suspense 1,900.
- (ii) The cash book debit is correct but the credit to the debtor is missing. Correcting entry: Dr Suspense 1,320, Cr Debtor 1,320.
- (iii) The repairs debit is short by 520 − 250 = P270. Correcting entry: Dr Repairs 270, Cr Suspense 270.
The account closes because the correcting entries exactly absorb the original P850 difference: 850 + 1,320 − 1,900 − 270 = 0. Items (iv) and (v) never touch the suspense account, because each of them affects debits and credits equally (iv) or affects neither side at all (v).
2. Calculate the corrected net profit and explain which of the five errors affect profit.
Read the worked answer
| Item | Effect on profit (P) | Running profit (P) |
|---|---|---|
| Draft net profit | - | 42,600 |
| (i) Sale posted to sales only | nil | 42,600 |
| (ii) Cheque not posted to debtor | nil | 42,600 |
| (iii) Repairs understated by 270 | (270) | 42,330 |
| (iv) Sales returns overcast by 300 | +300 | 42,630 |
| (v) Stationery omitted | (760) | 41,870 |
Corrected net profit = P41,870.
Why each item behaves as it does:
- (i) and (ii) are errors of partial omission confined to personal (debtor) accounts and the suspense account. Sales and cash were recorded correctly, so the income statement was never wrong - only the statement of financial position (trade receivables) was.
- (iii) the expense charged was P250 instead of P520, so profit was overstated by P270.
- (iv) overcasting the returns journal debits returns inwards by P300 too much; reducing that expense increases profit by P300.
- (v) a wholly omitted expense of P760 reduces profit.
3. Naledi says: 'Once the suspense account is closed, my books must be correct.' Evaluate this statement.
Read the worked answer
The statement is false. A suspense account exists only to carry the arithmetic difference between the debit and credit totals of the trial balance. Closing it proves that the ledger no longer has a one-sided error, but it says nothing about the many errors that leave the trial balance in agreement:
- Error of principle - for example, treating the purchase of a delivery van as a motor expense. Debits still equal credits, but profit is understated.
- Error of commission - a sale to T. Moyo posted to T. Mose's account. Both are debtors, so totals agree while one customer is wrongly billed.
- Error of original entry - an invoice for P450 entered as P540 in both the day book and the ledger.
- Error of complete omission - the stationery invoice in item (v) never entered anywhere.
- Compensating errors - two separate errors of P500 each, one too much on the debit side and one too much on the credit side.
- Transposition/reversal within the same side - a debit posted to the wrong debit account.
A further risk is specific to this case: item (iv) overcast the returns journal, which also affects the sales returns figure used in the control account, so the sales ledger control account must be corrected too even though the suspense account was not involved.
Conclusion: the suspense account catches only errors that break the equality of debits and credits. Naledi still needs a full review of the books, control account reconciliations and a review of the figures before the accounts can be relied on.