Trial Balance Difference of ₹1,890: Suspense Account or Genuine Error?
At the year-end close of a small trading firm in Dehradun, the trial balance extracted on 31 March does not agree: the debit column totals ₹4,86,210 and the credit column ₹4,88,100. The accountant says the difference of ₹1,890 is divisible by 9, 'so it must be a transposition; I will simply open a suspense account and close the year'. On checking, you trace two things: (i) the sales return book for March was undercast by ₹1,400 - the individual entries are correct, but the Sales Return account was posted from the faulty total; (ii) office expenses of ₹490 were entered correctly in the cash book but the posting to the Office Expenses account was never made. No other error was traced. The suspense account has already been inserted in the trial balance to make the two columns agree. The proprietor wants a final profit figure for his income-tax computation, which is due next week.
1. Test the accountant's divisibility-by-9 reasoning and show whether the traced errors fully explain the ₹1,890 difference.
Read the worked answer
Divisibility by 9 is a clue, not a proof. A transposition of two digits always produces a difference that is a multiple of 9, but the converse does not hold: any two or more one-sided errors whose net effect is a multiple of 9 will also pass the test. Here the test misleads.
- The undercast sales return book: ₹1,400. Digit sum 1+4+0+0 = 5, not divisible by 9 - so this is a casting error, not a transposition.
- The unposted office expense: ₹490. Digit sum 13 → 4, again not divisible by 9.
- Their sum: 1,400 + 490 = ₹1,890, which is divisible by 9. The multiple-of-9 property arises from the total, by coincidence, not from any transposition.
Direction check - this is where marks are lost. Both errors hit the debit side: Sales Return is a debit-balance contra account that was under-debited by ₹1,400, and Office Expenses was not debited at all (₹490). The debit column is therefore short by ₹1,890, which is exactly why the credit column appeared larger and why a debit-balance suspense account of ₹1,890 was inserted in the trial balance. The difference is fully explained; nothing remains untraced, so no further searching is needed and nothing may be written off.
2. Pass the rectification entries, show the suspense account, and state the effect on the profit already drafted.
Read the worked answer
Rectification (compound entry):
| Account | Dr (₹) | Cr (₹) |
|---|---|---|
| Sales Return A/c | 1,400 | |
| Office Expenses A/c | 490 | |
| Suspense A/c | 1,890 |
(Being the undercast sales return book and the unposted office expenses rectified.)
Suspense Account
| Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
| To Balance b/d (debit) | 1,890 | By Balance b/d / difference | 1,890 |
| By Sundry accounts (closing) | 1,890 |
After the compound entry the suspense account closes to nil.
Effect on profit: the draft profit was overstated by ₹1,890 - ₹1,400 because returns were under-recorded (net sales too high) and ₹490 because an expense was omitted. Debits to Sales Return and Office Expenses both reduce profit. The corrected profit is therefore draft profit minus ₹1,890.
Balance sheet: no external item changes. The suspense balance, until now shown on the asset side at ₹1,890, disappears, and the proprietor's capital falls by ₹1,890 through the reduced profit. The sheet still tallies in both versions.
3. The accountant proposes to 'leave the ₹1,890 in suspense and file anyway'. Advise the proprietor in two or three sentences, and state what must happen before the tax computation is signed.
Read the worked answer
Leaving the amount in suspense is not permitted for a final-account purpose: a suspense account is a holding device used while the difference is being traced, not a permanent ledger balance, and a return built on it would overstate income. Since both errors are now identified and quantified, the books can be made correct today with one compound journal entry.
The proprietor should be told plainly: the draft profit falls by ₹1,890, so the computation must use the corrected figure; the earlier draft understated the expense/return side and would have supported an incorrect - here higher - profit figure, which is the opposite of the usual worry and therefore easy to miss.
Before signing: pass the entry, close the suspense account to nil, extract a fresh trial balance that agrees without a suspense line, initial the correction in the journal with date and reason, and attach the corrected statement to the computation file so the auditor can trace it.