Control Accounts, Bank Reconciliation, Suspense Accounts and Correction of Errors
What the domain tests
This domain tests the control accounts that prove ledger balances, the bank reconciliation that explains timing differences, and the suspense account used when a trial balance does not balance. It also tests correction of errors.
Core rules
- Sales ledger control: debit opening balances, credit sales, interest charged, dishonoured cheques; credit cash receipts, sales returns, discounts allowed, bad debts and contra set-offs. Purchases ledger control is the mirror image.
- Bank reconciliation: start with the bank statement or cash book. Adjust for unpresented cheques, deposits not yet credited, bank charges, interest, standing orders, direct debits and bank errors. Do not adjust for errors already corrected in the cash book.
- Suspense account: opened only when the trial balance differs. Clear it by correcting errors. Errors of principle, commission, omission, original entry and compensating errors may not affect the trial balance.
- Transposition differences are usually divisible by 9.
Worked example
The trial balance has debit exceed credit by 900. Sales returns of 4,500 were entered in the day book as 5,400. Sales returns are debited, so the debit side is overstated by 900. Correction: credit sales returns 900 and debit suspense 900. The suspense account then clears.
Traps
A contra entry affects both control accounts; it is not a cash receipt. A bank reconciliation is not a correction of all errors. Compensating errors leave the trial balance balanced and no suspense. Do not put a one-sided error in the wrong account.