Trial Balance, Correction of Errors and Suspense Accounts
What the domain tests
You must extract a trial balance, classify errors by whether they affect its agreement, journalise corrections and clear a suspense account. Questions often supply a difference and a list of discovered errors.
Core rules
A trial balance lists debit and credit balances at a date. It proves only that total debits equal total credits, not that the ledger is correct.
Errors that do not affect trial balance agreement:
- error of omission, where a transaction is completely left out;
- error of commission, where the right class of account but wrong account is used;
- error of principle, such as capital expenditure posted to repairs;
- error of original entry, where a wrong amount is posted consistently to both accounts;
- error of reversal, where the correct accounts are used but the sides are reversed;
- compensating errors, which cancel out.
Errors that do affect agreement: one-sided postings, partial omission, different amounts on the two sides, and addition errors in one account.
A suspense account is opened for the difference. Each correction is journalised and the suspense account is cleared when every error is found.
Worked example
The trial balance credit column exceeds the debit column by 36,000 FCFA, so a suspense account with a debit balance of 36,000 is opened. Three errors are found:
- Purchases of 30,000 were entered in the purchases day book as 3,000. Purchases and payables are understated by 27,000: Dr Purchases 27,000; Cr Suspense 27,000.
- A sales return of 18,000 was omitted from the returns day book: Dr Sales returns 18,000; Cr Suspense 18,000.
- Rent paid of 45,000 was posted to the rent account as 54,000. Rent is overstated by 9,000: Dr Suspense 9,000; Cr Rent 9,000. Suspense account: opening debit 36,000, credits 27,000 and 18,000, debit 9,000. The account clears exactly.
Traps
An error of principle never affects trial balance agreement, so do not look for it as the cause of a difference. Do not correct errors by altering the original source document. A suspense account is temporary, not a real asset or liability. If only some errors are found, the remaining suspense balance stays on the balance sheet and must be disclosed.