The Suspense Account That Would Not Close
Meera is the only accountant at a small trading firm. She extracted the trial balance at 31 March 2025 and found the debit column short by ₹20,200. She credited a suspense account with that amount and closed the books. During the April review the following were found:
- The sales book was overcast by ₹3,200.
- Repairs of ₹9,600 were debited to the Rent account.
- A credit purchase of ₹12,000 was entered in the supplier's account but omitted from the purchases book.
- A cheque of ₹5,000 received from a customer was entered in the cash book but not posted to the customer's account.
- Discount allowed of ₹1,450 was debited to the Discount Received account.
The proprietor wants the suspense account cleared before the audit and wants to know how the year's profit is affected. Meera is unsure which errors affect the suspense account and which merely misstate individual ledger balances, and she is afraid of passing a plugging entry.
1. Compute the corrected suspense balance. State the direction of each correction and whether the suspense account clears fully.
Read the worked answer
Only one-sided errors sit in suspense. Errors 1, 3 and 4 affect one side of the trial balance; errors 2 and 5 have correct debits and credits but wrong account heads, so they cancel out and never reach suspense.
| Error | Rectification | Effect on suspense (credit) |
|---|---|---|
| Sales overcast ₹3,200 | Dr Sales, Cr Suspense | falls by 3,200 |
| Purchase omitted ₹12,000 | Dr Purchases, Cr Suspense | falls by 12,000 |
| Customer not posted ₹5,000 | Dr Suspense, Cr Customer | falls by 5,000 |
Total reduction 3,200 + 12,000 + 5,000 = ₹20,200, exactly equal to the opening credit balance. After the entries the suspense account has a nil balance, which is itself evidence that no one-sided error remains unlocated. If a residual had remained, it must be investigated, never written off to profit as a plug; an unexplained balance usually means an error is still hidden. Residues are carried forward pending enquiry.
2. State the net effect of these five errors on the reported profit, item by item.
Read the worked answer
Take each error separately:
- Sales overcast ₹3,200: sales were credited too much, so profit was overstated by ₹3,200; the correction reduces profit by ₹3,200.
- Purchase omitted ₹12,000: purchases were understated, so profit was overstated by ₹12,000; the correction reduces profit by ₹12,000.
- Customer posting ₹5,000: both sides were already in the books, so it is only a balance-sheet misstatement (debtors understated). Profit is unaffected.
- Repairs posted to Rent ₹9,600: total expenses and the total charge to profit are unchanged. Only the classification in the notes is wrong; the rent note is overstated and repairs understated by ₹9,600.
- Discount allowed debited to Discount Received ₹1,450: discount allowed is understated by ₹1,450 (profit higher) and discount received is understated by ₹1,450 (profit lower). Net effect nil, but both lines and the disclosure are wrong.
Net effect: profit was overstated by ₹3,200 + ₹12,000 = ₹15,200 and must be corrected before the financial statements are signed.
3. Pass the rectification entries for the omitted purchase and the discount misposting, and explain why the discount error does not touch suspense.
Read the worked answer
Omitted purchase:
Dr Purchases ₹12,000 Cr Suspense ₹12,000
(The supplier's account already carries the credit, so only the debit side is missing.)
Discount misposting:
Dr Discount Allowed ₹1,450 Cr Discount Received ₹1,450
Suspense is untouched because the clerk recorded one debit and one credit of ₹1,450. The trial balance totals therefore agreed; only the name of the account debited was wrong. Suspense arises only where an entry is single-sided, or where a wrong amount is posted to one account and a different amount to another, throwing out the totals. A post to the wrong account head on both sides is a two-sided error.
After all entries, verify that the corrected trial balance agrees before the books are closed for audit.