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C hapter 26: Suspense accounts and errors

Contents of chapter
This chapter shows what kinds of errors throw the trial balance totals out of agreement. It also shows how to
open a suspense account and how to eliminate it when all the errors have been discovered. The fact that a very
small difference can hide very large errors is a surprise to many people.

Notes for teachers


Only errors which have thrown the trial balance totals out of agreement have to be corrected via the
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suspense account.

The easiest way to correct such errors is to:


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(i) First, make the entry to correct the errors in the asset, liability, expense account, etc.
(ii) Second, make the entry in the suspense account. This entry is obviously on the opposite side from
that in (i).
Otherwise students very often show the entry on the wrong side of the suspense account.

In public examinations, candidates are usually required to calculate the corrected profits. Remember that
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some errors affect balance sheet items only. These then do not have to be brought into revised profit
calculations.

Candidates are very often required to show corrections in journal entries with or without narrations.
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It is often quite difficult (even for me) to visualise journal entries without first of all drawing up double
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entry accounts. So do the double entry accounts as ‘workings’, then show the journal entries as ‘answers’.

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Answers to MCQs and exercises
26.1 D 26.2 D 26.3 B 26.4 A 26.5 B

26.6
Debit side exceeds Credit side exceeds
Item No effect
credit side by the amount of debit side by the amount of
(a) √
(b) √
(c) $1,000
(d) $450
(e) √

26.7X
Debit side exceeds Credit side exceeds
Item No effect
credit side by the amount of debit side by the amount of
(a) √
(b) 3,400
(c) √
(d) 1,500
(e) 610
(f) 170
(g) √

26.8
(a) Suspense
$ $
Balance b/f 1,134 Sales overcast (1) 350
Creditor (4) 166 Discounts allowed undercast (2) 100
Fixtures omitted (3) 850
1,300 1,300

Note: (5) does not affect suspense account.

(b) K Wong
Trial Balance as at 30 June 20X8
Dr Cr
$ $
Sales ($87,050 – $350) 86,700
Purchases 62,400
Discounts allowed and received ($305 + $100) 405 410
Salaries and wages 3,168
General expenses 595
Fixtures ($10,000 + $850) 10,850
Stock as at 1 July 20X7 12,490
Debtors and creditors ($5,045 + $166 – $490) 8,120 4,721
Bank 6,790
Drawings ($4,520 – $490) 4,030
Capital 17,017
108,848 108,848

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26.9
(a) Trial Balance as at 31 January 20X9
Dr Cr
$ $
Capital as at 1 February 20X8 5,500
Drawings 2,800
Stock as at 1 February 20X8 2,597
Trade debtors 2,130
Furniture and fittings 1,750
Cash in hand 1,020
Trade creditors 2,735
Sales 7,430
Returns inwards 85
Discounts received 46
Business expenses 950
Purchases 4,380
15,712 15,711

(b) The trial balance still does not agree. A suspense account should be opened and credited with the difference of $1.

(c) The Journal


Dr Cr
$ $
1. Creditor 75
Suspense 75
2. Suspense ($56 – $50) 6
Debtor 6
3. Furniture and fittings 120
Purchases 120
4. Discounts allowed 38
Suspense 38
5. Suspense ($564 – $456) 108
Sales 108

(d) Trial Balance as at 31 January 20X9


Dr Cr
$ $
Capital as at 1 February 20X8 5,500
Drawings 2,800
Stock as at 1 February 20X8 2,597
Trade debtors ($2,130 – $6) 2,124
Furniture and fittings ($1,750 + $120) 1,870
Cash in hand 1,020
Trade creditors ($2,735 – $75) 2,660
Sales ($7,430 + $108) 7,538
Returns inwards 85
Discounts received 46
Business expenses 950
Purchases ($4,380 – $120) 4,260
Discounts allowed 38
15,744 15,744

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26.10X
(a) Suspense
$ $
Purchases overcast (1) 258 Balance b/f 1,546
Bank (3) 1,500 Creditor (4) 168
Sundry expenses (5) 44
1,758 1,758

Note : (2) does not affect suspense account.

(b) T Sang
Trial Balance as at 31 December 20X7
Dr Cr
$ $
Capital 25,621
Drawings 13,690
Sales 94,630
Purchases ($60,375 – $258) 60,117
Returns inwards and outwards 1,210 1,109
Wages and salaries ($14,371 – $2,000) 12,371
Sundry expenses ($598 + $44) 642
Stock as at 1 January 20X7 8,792
Debtors and creditors (creditors: $4,290 – $168) 11,370 4,122
Loan from J Chen ($5,000 – $2,000) 3,000
Equipment 16,000
Bank ($5,790 – $1,500) 4,290
128,482 128,482

26.11
(a) The Journal
Dr Cr
$ $
1. Suspense 100
Sales 100
2. K Hou 250
K Hung 250
3. Rent 70
Suspense 70
4. Suspense 300
Discounts received 300
5. Sales 360
Motor vehicle disposal 360
Motor vehicle disposal 3,360
Motor vehicle 3,360
Provision for depreciation: Motor vehicle 3,000
Motor vehicle disposal 3,000

(b) Suspense
$ $
Sales (1) 100 Balance b/f 330
Discounts received (4) 300 Rent (3) 70
400 400

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(c) Statement of Corrected Net Profit for the year ended 31 December 20X6
$ $
Net profit as per accounts 7,900
Add (1) Sales undercast 100
(4) Discounts received undercast 300 400
8,300
Less (3) Rent undercast 70
(5) Sales overstated 360 430
Corrected net profit for the year 7,870

26.12X
(a) The Journal
Dr Cr
$ $
1. Sales 55
Office equipment disposals 55
2. Suspense 60
Purchases 60
3. Drawings 115
Purchases 115
4. Bank charges 38
Suspense 38
5. Suspense 270
C Chow 270

(b) Suspense
20X6 $ 20X6 $
Dec 31 Purchases (2) 60 Dec 31 Balance b/f 292
" 31 C Chow (5) 270 " 31 Bank charges (4) 38
330 330

(c) Statement of Corrected Net Profit for the year ended 31 December 20X6
$ $
Net profit as per account 11,370
Add (2) Purchases overcast 60
(3) Purchases overstated 115 175
11,545
Less (1) Sales overstated 55
(4) Bank charges omitted 38 93
Corrected net profit 11,452

26.13X
(a) Suspense
$ $
Balance b/f (balancing figure) 3,955 Discounts allowed (1) 1,680
Bank interest received (5) 390 Rent (2) 1,000
C Bau (9) 450 Returns inwards (8) 1,999
Petty cash (10) 116
4,795 4,795

Note:
(1) needs to double the amount to cancel out the error. That is $840 × 2 = $1,680.
Items (3), (4), (6) and (7) do not need to be recorded in the suspense account.

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(b) C C Ltd
Statement of Corrected Net Profit for the year ended 31 December 20X5
$ $
Net profit originally shown 479,280
Add (5) Bank interest received omitted 390
479,670
Less (1) Discounts allowed understated 1,680
(2) Rent undercast 1,000
(3) Purchases omitted 279
(4) Wages understated 12,800
(7) Motor expenses understated 377
(8) Returns inwards omitted 1,999 18,135
Corrected net profit 461,535

26.14
(a) Suspense
$ $
Sales (1) 60,000 Trial balance difference 53,400
Debtor (2) 2,700 Discount received (3) 6,000
Bank charges (4) 300
Petty cash omitted (7) 3,000
62,700 62,700

(b) Statement of Corrected Net Profit for the year ended 30 September 20X8
$ $
Balance as per balance sheet 126,000
Add (1) Sales day book undercast 60,000
(6) Repairs to owner‘s private home 8,000 68,000
194,000
Less (4) Bank charges omitted 300
(5) Stock overcast 7,100 7,400
Corrected net profit 186,600

(c) Mark Co
Balance Sheet as at 30 September 20X8
Fixed Assets $ $
Premises, at cost 240,000
Machinery, at cost 240,000
Less Provision for depreciation 60,000 180,000
420,000
Current Assets
Stock ($35,000 – $7,100) 27,900
Debtors ($40,000 – $2,700) 37,300
Bank 129,200
Cash (7) 3,000
197,400
Less Current Liabilities
Sundry creditors ($40,800 – $6,000) 34,800
Net current assets 162,600
582,600
Financed by:
Capital 500,000
Add Profit for the year 186,600
686,600
Less Drawings ($96,000 + $8,000) 104,000
582,600

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26.15X
(a) The Journal
Dr Cr
$ $
1. Drawings 1,900
Purchases 1,900
2. Sales 32,000
Suspense 32,000
3. Water expenses 150
Accruals 150
4. Purchases 800
Discounts received 800
5. Trade creditors ($1,800 × 2) 3,600
Suspense 3,600
6. Suspense (single entry) 2,000
7. Suspense ($22,000 – $20,200) 1,800
Trade debtors 1,800
8. Trade debtors 3,000
Bank 3,000

(b) Suspense
20X6 $ 20X6 $
Mar 31 Trial balance difference 35,800 Mar 31 Sales overcast 32,000
" 31 Trade debtors 1,800 " 31 Trade creditors 3,600
" 31 Petty cash 2,000
37,600 37,600

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