Errors & The Suspense Account (Cambridge (CIE) O Level Accounting)
Revision Note
Written by: Dan Finlay
Reviewed by: Lucy Kirkham
Errors Which Affect The Trial Balance
Which errors affect the trial balance?
There are some errors that are identified by the trial balance
The most common reasons for these types of errors are:
Addition errors
Posting errors
Unequal posting errors
Partial omission errors
Which are addition errors?
Addition errors occur when:
A calculation error is made when balancing an account
A numerical error is made when totalling the debits or credits in the trial balance
Example
A business has two entries in the drawings account: $550 and $450
The business incorrectly totals this account as $910
Which are posting errors?
Posting errors occur when both entries of a transaction are made on the same side of the accounts
Both are entered as debits or both are entered as credits
Example
A business pays $500 for rent
The rent account is debited $500
The bank account is debited $500
This should be a credit entry
Which are unequal posting errors?
Unequal posting errors occur when a transaction is entered into two accounts using different amounts
Transposition errors are common examples of unequal posting
This is where the digits are entered in the wrong order
Example
A business makes a credit sale of $52
$52 is entered into the sales account
$25 is entered into the trade receivables account
The digits have been switched around
Which are partial omission errors?
Partial omission errors occur when a transaction is only entered once into the ledger accounts
The debit or credit entry is missing
Example
A business takes $200 worth of goods for personal use
They debit the drawings account
But they forget to credit the purchases account
Suspense Account
What is a suspense account?
A suspense account is used to correct errors when the totals in the trial balance are not equal
It is a temporary account
It should be fully balanced once all the errors are corrected
How do I use a suspense account to correct errors?
STEP 1
Find the difference between the total debits and the total credits on the trial balanceSTEP 2
Enter the difference into a suspense account on the side which has the lower totalCall the entry “Difference on trial balance”
STEP 3
Make entries into the ledger accounts to correct the errorsLabel the entries as “Suspense account”
STEP 4
Balance these entries by making corresponding entries into the suspense accountThese entries will be on the opposite side to the entries that corrected the error
STEP 5
Close the suspense account once all the errors have been correctedThe suspense account should automatically be balanced
If not, there are still errors
How do I find the difference in the totals on the trial balance?
If you have the trial balance, simply subtract the smaller total from the larger total
Sometimes you will not be given the trial balance
You could be given a list of errors and asked to find the difference in the totals on the trial balance
Correct the errors using the suspense account
Balance the suspense account
Label the balancing entry as “Difference on trial balance”
The side that this entry appears on is the side which had the smaller total on the trial balance
Examiner Tips and Tricks
You might still be asked to make journal entries alongside a suspense account. Remember that one of the accounts for each journal entry should be the suspense account.
Worked Example
Jonas prepared a trial balance on 31 March 2024 and the totals were not equal. Credits were $590 higher than debits. The following errors were identified.
Credit purchases of $850 to Nicki had been correctly entered in the purchases account, but credited as $580 in Nicki’s account.
The sales account had been overstated by $740.
Discount allowed, $400, had been credited to the discount received account.
Vehicle expenses, $50, had been debited to the vehicles account.
A payment of $260 from a credit customer, Timmy, had been entered correctly into the cash book but had been debited to Timmy’s account.
Purchases returns, $160, had been entered correctly in the purchases ledger but had been omitted from the purchases returns account.
Prepare the suspense account to correct the errors. Start with the difference on the trial balance.
Answer
The debit total was smaller on the trial balance, so put the difference on the debit side of the suspense account.
Deal with the errors one at a time.
Credit $270 to Nicki’s account ($850 - $580), then debit the suspense account.
Debit $740 to the sales account to reduce it, then credit the suspense account.
Discount allowed should have been debited to the discount allowed account. Debit $400 to the discount received account and debit $400 to the discount allowed account. Then credit the suspense account.
This is an error of principle that does not affect the balancing of the trial balance. Therefore, no entries are made into the suspense account to correct the error.
Timmy’s account should have been credited. Credit $260 to Timmy’s account twice, once to undo the incorrect posting and once to enter the correct posting. Then debit the suspense account.
Credit $160 to the purchases returns account. Then debit the suspense account.
Suspense Account
Date | Details | $ | Date | Details | $ |
2024 |
Difference on trial balance |
590 | 2024 |
Sales |
740 |
Nicki | 270 | Discount allowed | 400 | ||
Timmy | 520 | Discount received | 400 | ||
Purchases returns | 160 |
| |||
1 540 | 1 540 |
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