Zainab Trading Enterprise: Suspense Account and Six Year-End Errors
Zainab Trading Enterprise is a sole trader selling building materials. At 31 December 2024 the bookkeeper extracted a trial balance whose credit column exceeded the debit column by ₦89,800, and the difference was posted to a suspense account. The following were then discovered:
- The December sales day book was overcast by ₦24,000.
- A payment of ₦36,000 to a supplier, Adekunle Ltd, was correctly entered in the cash book but posted to Adekunle's account as ₦63,000.
- Discount received of ₦9,600 had been posted to the debit of the discount allowed account.
- A cheque of ₦40,000 received from a customer was entered once in the cash book but credited to the customer's account twice.
- Rent of ₦18,000 paid by cheque was entered in the cash book but never posted to the rent account.
- Office equipment costing ₦150,000, bought for cash in March 2024, was debited to the purchases account. Depreciation of 20% per annum on cost, full year, has not yet been charged.
The draft profit for the year, before any of these corrections, is ₦1,240,000.
1. Determine whether each of the six items affects the suspense account, and compute the balance on the suspense account before corrections. Explain why the figure you derive is consistent with the bookkeeper's trial balance.
Read the worked answer
Principle. Suspense only arises where the two sides of the ledger are unequal. That happens with a one-sided entry, an entry made twice on one side, or a wrong amount posted to one side only of a double entry. A complete double entry posted to the wrong account leaves the trial balance in agreement and therefore never touches suspense.
| Item | Effect on the ledger | Suspense entry created |
|---|---|---|
| (a) Sales overcast ₦24,000 | Sales credited 24,000 too much; only the credit side is wrong | Dr 24,000 |
| (b) Adekunle credited ₦63,000 instead of ₦36,000 | Supplier account credited 27,000 too much; cash book correct | Dr 27,000 |
| (c) Discount received debited to discount allowed | Debits overstated 9,600 and credits understated 9,600 = 19,200 net credits short | Cr 19,200 |
| (d) Cheque ₦40,000 credited to customer twice | An extra credit of 40,000 on one side only | Dr 40,000 |
| (e) Rent ₦18,000 not posted | Debit missing altogether | Dr 18,000 |
| (f) Equipment debited to purchases | Full double entry made (Cr cash); only the classification is wrong | None |
Net suspense = Dr (24,000 + 27,000 + 40,000 + 18,000) − Cr 19,200 = Dr ₦89,800.
A debit balance of ₦89,800 means the debit column of the trial balance was short by that amount - that is, the credit column exceeded the debit column by ₦89,800. That is exactly what the bookkeeper reported, so the six errors fully explain the difference and no further undiscovered error is implied. Item (f) is the trap: it overstates purchases and understates non-current assets, but it will never appear in the suspense account.
2. Prepare the journal entries to correct all six items and show the suspense account, demonstrating that it clears to nil.
Read the worked answer
| # | Dr | Cr | ₦ | ₦ |
|---|---|---|---|---|
| (a) | Sales | Suspense | 24,000 | 24,000 |
| (b) | Adekunle Ltd (payables) | Suspense | 27,000 | 27,000 |
| (c) | Suspense | Discount allowed | 19,200 | 9,600 |
| Discount received | 9,600 | |||
| (d) | Customer (receivables) | Suspense | 40,000 | 40,000 |
| (e) | Rent | Suspense | 18,000 | 18,000 |
| (f)(i) | Office equipment | Purchases | 150,000 | 150,000 |
| (f)(ii) | Depreciation expense | Accumulated depreciation – office equipment | 30,000 | 30,000 |
Each suspense entry is the mirror image of the imbalance the error created. In (c), for example, the original posting left the ledger 19,200 short of credits, so the correction debits suspense with 19,200 and credits both discount accounts.
Suspense account
| Dr | ₦ | Cr | ₦ |
|---|---|---|---|
| Balance b/d | 89,800 | (a) Sales | 24,000 |
| (c) Discount allowed / received | 19,200 | (b) Adekunle Ltd | 27,000 |
| (d) Customer | 40,000 | ||
| (e) Rent | 18,000 | ||
| Total | 109,000 | Total | 109,000 |
The account closes exactly to nil, confirming the diagnosis. Note that item (f) requires two journal entries - one to reclassify the capital expenditure and one to record the depreciation that the misposting concealed.
3. Compute the corrected profit for the year and explain the treatment of any item that does not change profit.
Read the worked answer
| ₦ | |
|---|---|
| Draft profit | 1,240,000 |
| (a) Reduce overstated sales | (24,000) |
| (b) Supplier account correction - statement of financial position only | – |
| (c) Discount allowed reduced 9,600 and discount received restored 9,600 | 19,200 |
| (d) Customer account correction - statement of financial position only | – |
| (e) Rent omitted | (18,000) |
| (f) Purchases reduced by 150,000, less depreciation of 150,000 × 20% | 120,000 |
| Corrected profit | 1,337,200 |
Reasoning on the two non-profit items: (b) and (d) simply move amounts between the bank, receivables and payables. They change assets and liabilities but never income or expenses, so profit is untouched - a common exam trap.
Item (f) is a capital/revenue error, which does affect profit twice: removing ₦150,000 from purchases increases profit, but the asset must then be depreciated. Charging a full year is appropriate here because the asset was in use from March and the entity's policy charges depreciation from the month of acquisition; the net favourable effect is ₦120,000. Had the equipment been bought in December and the policy been to charge from the following month, the depreciation in 2024 would have been nil and the profit effect the full ₦150,000 - so the policy must always be checked before the figure is finalised.