Correction of errors and suspense accounts
What the examiner tests
This domain tests whether you can classify errors, decide whether the trial balance is affected, and clear a suspense account correctly.
Core rules
- Errors that do not affect the trial balance: error of omission (both entries missing), commission (right class, wrong account), principle (wrong class of account), original entry (same wrong amount both sides), compensating errors, complete reversal, and some transposition errors.
- Errors that do affect the trial balance: one-sided entry, omission of one side, addition error in a ledger or trial balance, and different amounts posted to the two sides.
- A suspense account is opened for the difference. It is cleared by journal entries when the errors are found. It should not remain in the final accounts.
- Corrections use the journal: state the accounts, the debit, the credit and a narrative.
Worked example
A trial balance has credits exceeding debits by N$250. Rent of N$250 paid by cheque was entered only in the cash book. The cash book was credited, so credits are N$250 too high. The suspense account therefore carries a N$250 debit balance. Correction: Dr Rent 250; Cr Suspense 250. A separate error: equipment of N$5,000 was debited to repairs. This is an error of principle and the trial balance still balances. Correction: Dr Equipment 5,000; Cr Repairs 5,000. No suspense entry is needed.
Traps
Do not use the suspense account for errors that already balance. Do not clear a suspense balance through profit and loss. Check the direction of the original entry before writing the correction. Remember that a transposition error affects the trial balance only when the two sides are not equally wrong.