Learning Objectives

Correction of Errors and Suspense accounts

Identify the different types of errors

Identify the basic process of error management

Appreciate the relationship between errors and profits

Explain the process of rectification of errors after finalization of accounts

Situations where Accounting Errors can take place

When recording in prime entry books

• During the recording process.
• When balancing off.
• When transferring to ledger.
When transferring to ledger
• At the time of posting.
• At the time of balancing.
Identification of Accounting Errors
Errors can be divided into:
• Errors that do not affect the balance of Trial Balance
• Errors that affect the balance of Trial Balance
Errors that do not affect the balance of Trial Balance

• ERROR OF OMISSION
• ERROR OF COMMISSION
• ERROR OF ORIGINAL ENTRY
• DUPLICATING ERROR
• ERROR OF COMPLETE REVERSAL
• ERROR OF TRANSPOSITION
• ERROR OF PRINCIPLE
Errors that do not affect the balance of Trial Balance

Example – The telephone bill of $ 5000 paid by cash

Error of Omission has not been recorded in the Journal.
• transaction is entirely omitted General Journal
from the books.
DESCRIPTION DEBIT CREDIT
• To rectify pass a fresh journal
entry Telephone 5 000
account
• to rectify – record the double
entry of the transaction in the Cash 5 000
account
ledger.
Correction of Telephone bill payment of $ 5000
omitted from the books)
Errors that do not affect the balance of Trial Balance
Example : Payment of $1 000 made to supplier John is
debited to supplier Johnson.
ERROR OF COMMISSION Both John and Johnson are suppliers but are different
suppliers.

General Journal
• Error where the wrong account
DESCRIPTION DEBIT CREDIT
is of the same class as the
correct account. John account 1 000

Johnson 1 000
account

Rectifying error of payment of $ 1000 made to John

and credited to Johnson account)
Errors that do not affect the balance of Trial
Balance
Example – Purchase amounting $ 9300 to Shakira has
been recorded in the books by debiting Purchases
ERROR OF ORIGINAL ENTRY account at $ 6300 and crediting Shakira’s account for
the same value.

General Journal
• The correct value of transaction
may be over- stated or under – DESCRIPTION DEBIT CREDIT
stated due to various reasons.
Purchase 3 000
• Where both accounts have been account
under or over– stated by the same
amount Shakira 3 000
account
• the original figure is incorrect, yet
double entry is still observed using Correction of purchase of $ 9 300 recorded as $6 300
this incorrect figure in the books
Errors that do not affect the balance of Trial Balance
Example : Purchase returns of $ 5000 to JJ Trading has
DUPLICATING ERROR been recorded in the ledger twice.

General Journal
• Recording of the same
transaction twice in the ledger DESCRIPTION DEBIT CREDIT

Purchase Return 5 000

account
To rectify this error:
• Half of the amount out of which JJ Trading 5 000
account
has been recorded twice should
be recorded in the opposite side Correction of purchases returns of $ 5000 twice
of relevant accounts. recorded in relevant accounts
Errors that do not affect the balance of Trial Balance
Example : a cheque paid to D Williams for $2000. In
error it is entered as Cr D Williams $2000, Dr Bank
ERROR OF COMPLETE REVERSAL $2000

General Journal
• where the correct accounts are
DESCRIPTION DEBIT CREDIT
used but each item is shown on
the wrong side of the account D Williams 4 000
account

Bank 4 000
account

Correction of purchases returns of $ 5000 twice

recorded in relevant accounts
Errors that do not affect the balance of Trial Balance
Example : Inventory for $ 10000 and furniture for $
15000 purchased.
COMPESATING ERROR
But entered stock as $ 15000 and furniture as $10000 .

• An error is set off by another General Journal

error /s in another account/s
that make the trial balance to DESCRIPTION DEBIT CREDIT
still balance Furniture 5 000
account

Purchase 5 000
account

Rectifying error of under- stated Furniture Acc. And

over-stated Purchase Acc. By $ 5000)
Errors that do not affect the balance of Trial Balance
Example – Sale amounting $ 9350 to Peter has been
recorded in the books by debiting Peter’s account at $
3950 and crediting sale’s account for the same value.
ERROR OF TRANSPOSITION

General Journal
• Error arising from the
DESCRIPTION DEBIT CREDIT
transposition of the order of
characters within a number Peter’s account 5 400

• Error that occurs when there is

Sale’s 5 400
wrong sequence of individual account
characters within a number
Rectifying error of payment of $ 9 350 wrongly
recorded in an amount of $3 950.
Errors that do not affect the balance of Trial
Balance Example 1 :- Purchase of a furniture worth $ 10000 has
been debited to purchase account.
ERROR OF PRINCIPLE Furniture has been purchased for the use of the
business. So it should be debited to an asset account.
• Errors as a result of not General Journal
following the basic principles
DESCRIPTION DEBIT CREDIT
• Errors as a result of a violation of
an accounting convention, Furniture 10 000
account
standard, policy or principle
Purchase’s 10 000
account

Correction of purchase of furniture amounting to $ 10

000 recorded in the purchase account
Errors that affect the balance of Trial Balance

Errors that don’t affect the balance in the trial balance are those that occur in
both entries during the double entry process
Example: if you record wrong amount on the debit side you record the same
wrong amount on the credit side.

Errors revealed by the trial balances are those that occur only in one account
during the double entry process .
They are the following:
• Transposition of only one entry
• Omission of only one entry
• Recording of two different amounts
Errors that affect the balance of Trial Balance

Due to some errors the total of debit and credit balances of the trial balance do
not agree.
Steps to be taken to rectify the errors:

01) Find out the difference.

02) As the reason for this difference is not sure (suspense), write the word
“Suspense Account” in front of the difference and balance the trial balance
temporarily.
03) Find out the reasons for difference.
04) Rectify the errors using journal entries
Errors that affect the balance of Trial Balance
Steps to be taken to rectify the errors:
Debit and credit
Find error
columns don’t balance

Temporary measure to
Open suspense balance debit and
account credit

Via the suspense

Correct the error account

Temporary measure
Close off suspense stops existing
account
Errors that affect the balance of Trial Balance

Example :- invoice of $ 685 entered correctly in the

Transposition of One Entry suppliers account entered $586 in the purchases
account
• It occurs when the bookkeeper General Journal
inverts the sequence of
characters in only one entry in DESCRIPTION DEBIT CREDIT

the recording process Purchases 99

account
• If only this error occurred in the
recording process the difference Suspense 99
in the trial balance is always account
divisible by 3.
Debiting $99 under cast in purchases account as a
result of transaction of $685 into $586.
Errors that affect the balance of Trial Balance

Example :- Telephone bill paid $ 5000 entered only in

Error of Omission of One Entry cash book but not in Telephone bill account.
• It occurs when the bookkeeper General Journal
omits one entry in the recording
process DESCRIPTION DEBIT CREDIT

• Errors that where the double Telephone 5 000

account
entry completed
Suspense 5 000
account

Debiting Telephone bill paid amount $ 5000

Errors that affect the balance of Trial Balance
Recording two different amounts
Example : A motor vehicle bought for $100000 debited
to the Vehicle account $ 100000 but cash account
credited as $ 10000.
• Errors that occurs when the General Journal
bookkeeper records one amount
DESCRIPTION DEBIT CREDIT
on the debit or credit side and
different on the other side Suspense 90 000
account

Cash 90 000
account

Crediting cash account $90 000 recorded as 10000

Errors that affect the balance of Trial Balance
Example :- In a cash sale the amount of $523 is
correctly debited in the cash account but the same
Commission of One Entry amount was also debited in sales account
• It occurs when the bookkeeper General Journal
inverts the sequence of
characters in only one entry in DESCRIPTION DEBIT CREDIT

the recording process Suspense 1 046

account
• If only this error occurred in the
recording process the difference Sales 1 046
in the trial balance is always account
divisible by 2.
Correction of an amount of $523 recorded wrongly in
the debit side of the sales account .
Correction of Errors and Suspense accounts
SUMARY

Errors can or cannot affect the balances in the trial balance

Errors must be corrected as soon as they are detected and all accounts must be cleared at year end

When trial balance does not balance a suspense account must be opened to bring a temporary balance

Suspense account must be cleared as soon as the mistake is identified

Correction of Errors and Suspense accounts

Thank you and remember