Correction of Errors and Suspense Accounts
What the exam tests
This domain tests identification and correction of errors, including those that do not affect the trial balance, and the use of a suspense account when the trial balance fails to agree.
Core rules
- Errors of omission, commission, principle, original entry, reversal, compensating error and transposition may or may not affect the trial balance.
- One-sided errors create a suspense account; two-sided errors are corrected by journal without suspense.
- Correction: identify the wrong entry, then post the difference needed to reach the correct entry.
- The suspense account must be cleared before final accounts are prepared.
Worked example
A credit sale of N9,000 was correctly entered in the sales day book but posted to the receivables ledger as N900. Receivables is understated by N8,100; sales is correct. The trial balance therefore has a credit suspense balance of N8,100. Correction: debit receivables N8,100 and credit suspense N8,100. Suspense clears and receivables becomes N9,000. Profit is unaffected because sales was already correctly credited.
Traps
Do not use suspense for an error that affects both sides equally, such as a complete reversal. Do not correct a transposition by reversing the entire original entry if only the difference is needed. Remember that some corrections change profit, while others only reclassify balances.