Accounting Errors & Suspense Accounts | Answers
Error Classification
Scenario
1. Recorded $250 instead of $520
2. Posted wages to Rent Expense
3. Forgot to record a cash sale
4. Posted a purchase in the supplier’s wrong account
5. Posted $100 on the credit side instead of debit
1. Recorded $250 instead of $520
2. Posted wages to Rent Expense
3. Forgot to record a cash sale
4. Posted a purchase in the supplier’s wrong account
5. Posted $100 on the credit side instead of debit
Type of Error
1. Error of Original Entry
2. Error of Principle
3. Error of Omission
4. Error of Commission
5. Transposition / Posting to wrong side ➧ Affects Trial Balance
1. Error of Original Entry
2. Error of Principle
3. Error of Omission
4. Error of Commission
5. Transposition / Posting to wrong side ➧ Affects Trial Balance
Does It Affect the Trial Balance?
Scenario
1. Error of omission
2. Only debit entry made
3. Compensating errors
4. Error of principle
5. Amount recorded on wrong side
1. Error of omission
2. Only debit entry made
3. Compensating errors
4. Error of principle
5. Amount recorded on wrong side
Effect
1. No Effect
2. Affect
3. No Effect
4. No Effect
5. Affect
1. No Effect
2. Affect
3. No Effect
4. No Effect
5. Affect
Suspense Account Use
Scenario
1. Trial balance differs by $200
2. Cash sale omitted
3. Recorded $45 as $54
4. Supplier account wrongly posted
5. Debit side $7,800, credit side $7,600
1. Trial balance differs by $200
2. Cash sale omitted
3. Recorded $45 as $54
4. Supplier account wrongly posted
5. Debit side $7,800, credit side $7,600
Suspense Needed
1. Needed
2. Not needed | doesn't affect totals
3. Needed | causes difference
4. Not needed
5. Needed
1. Needed
2. Not needed | doesn't affect totals
3. Needed | causes difference
4. Not needed
5. Needed
Correcting Errors | Journal Entries
Cash received from customer $300 posted only to Cash account.
Debit
Credit
Account Receivable $300
Account Receivable $300
Credit entry missing
Only credit entry needed since debit already done
Wages $500 posted to Furniture account.
Debit
Wages Expense $500
Wages Expense $500
Credit
Furniture $500
Furniture $500
Wrong account used
Purchase of goods $700 completely omitted.
Debit
Purchases / Inventory $700
Purchases / Inventory $700
Credit
Accounts Payable / Cash $700
Accounts Payable / Cash $700
Record full entry
Mini Case Study
A printing shop finds their trial balance is off by $400. Investigation shows the following issues
Cash received $200 was posted as debit instead of credit
➛ Affects TB
Rent Expense $300 recorded as $30
➛ Affects TB
A credit sale of $500 was never recorded
➛ No immediate TB effect
Questions
Which errors affect the trial balance?
➛ The first and second errors.
Should a suspense account be opened? Why?
➛ Yes - because the trial balance does not balance and errors exist that affect debit/credit totals.
Provide the correcting journal entries.
Wrong side posting
Dr Suspense Account 400?
until identified difference
Dr Cash?
Only correction needed
Cr Sales Revenue?
Depending on record flow
More accurately fixing the individual errors
Dr Accounts Receivable 500 for omitted credit sale
Cr Sales Revenue 500
Dr Rent Expense 270 to adjust from 30 to 300
Cr Suspense Account 270
Cr Cash 400 change posting from debit to credit
Dr Suspense Account 400
After corrections, is the suspense account closed?
Yes - once all errors are corrected, suspense should balance to zero and be closed.
Quick Quiz
What is a suspense account?
➛ A temporary account used when the trial balance does not balance until errors are found.
All errors cause the trial balance not to balance.
➛ False
Which error involves recording the wrong amount?
➛ Error of original entry
What must be done to a suspense account after errors are corrected?
➛ It must be closed | cleared to zero.
Name one error that doesn’t affect the trial balance.
➛ Error of omission
➛ Principle
➛ Commission
➛ Compensating
Accrual vs Cash Accounting ➧ Here