Suspense Account and Errors That Do Not Affect the Trial Balance
At 31 December 2025 the trial balance of Mwansa Traders showed a suspense account with a credit balance of $1,170. Investigation found: (i) rent paid $750 had been entered in the rent account as $570, although the bank payment was correct; (ii) a payment of $900 to a supplier had been recorded in the cash book but not posted to the supplier's account; (iii) discount received $90 had been entered in the discount received account but not posted to payables; (iv) the sales returns day book had been undercast by $400; (v) equipment costing $1,500 had been entered in the purchases account; and (vi) a credit sale of $500 had been completely omitted from the books. The owner wants to debit the suspense account with the whole $1,170 and treat it as a loss, arguing that all errors reduce profit.
1. Explain why the suspense account has a credit balance of $1,170, and calculate the balance remaining after each of errors (i) to (iii) is corrected.
Read the worked answer
The trial balance had total debits lower than total credits by 1,170, so the suspense account carried a credit balance. Each of errors (i)–(iii) left one side of an entry short:
- (i) Rent was debited with 570 instead of 750: debits are short by 180. Correction: Dr Rent 180; Cr Suspense 180. Suspense remaining: 1,170 − 180 = 990 credit.
- (ii) The supplier's account was not debited with 900: debits are short by 900. Correction: Dr Payables 900; Cr Suspense 900. Remaining: 990 − 900 = 90 credit.
- (iii) Payables were not debited with the discount received of 90: debits are short by 90. Correction: Dr Payables 90; Cr Suspense 90. Remaining: nil.
Thus the suspense account is cleared by three credit entries totalling 1,170.
2. Prepare journal entries to correct errors (i) and (v), and state whether each correction affects profit.
Read the worked answer
(i) Rent correction
| Account | Dr $ | Cr $ |
|---|---|---|
| Rent | 180 | |
| Suspense | 180 |
This increases rent expense by 180, so profit falls by 180.
(v) Equipment wrongly entered in purchases
| Account | Dr $ | Cr $ |
|---|---|---|
| Equipment | 1,500 | |
| Purchases | 1,500 |
This removes 1,500 from purchases and adds it to a non-current asset. Profit increases by 1,500 before any depreciation; depreciation should then be charged on the equipment in accordance with policy. This error did not affect suspense because both entries were on the correct sides, only the debit account was wrong.
3. State the effect of errors (iv), (v) and (vi) on the draft profit, and explain why none of them affects the suspense account.
Read the worked answer
(iv) Sales returns day book undercast by 400: sales returns are understated, so draft profit is overstated by 400. Correction reduces profit by 400. (v) Equipment in purchases: purchases are overstated by 1,500, so draft profit is understated by 1,500. Correction increases profit by 1,500 before depreciation. (vi) Credit sale of 500 omitted: sales and receivables are both understated; draft profit is understated by 500. Correction increases profit by 500.
None affects the suspense account. In (iv) the undercast total is posted to both sales returns and receivables, so both debits and credits are equally short; in (v) the wrong account is on the same side as the correct account; in (vi) both sides of the entry are completely omitted. A suspense account arises only when the two sides of the trial balance are unequal.