Correction of accounting errors for a Level or level under National , Edexcel and Cambridge Syllabuses
Situations where errors take place:
Two types of errors , Errors which are not revealed by the trial balance and errors which are revealed by the trial balance, errors of omission , commission , principle, original entry , compensating and complete reversal , suspense account , past papers
Science 7 - LAND and SEA BREEZE and its Characteristics
Cambridge as level correction of errors
1. Correction of Errors
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Accounting with Sanjaya
Correction of Errors
Sanjaya Jayasundara
B.Sc.(Finance) Sp.
University of Sri Jayewardenepura,
Investment Advisor,
International School Teacher
2. Correction of Errors
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Accounting with Sanjaya
Content
Introduction.
The situations where accounting errors take place.
Type of accounting errors.
Suspense Account
Statements of revised/corrected profit
Past paper questions.
Short Note.
Syllabus according to Cambridge AS Level
1.3 Reconciliation and verification
• prepare ledger accounts and journal entries to correct errors using a suspense account
and record the effects of these in the financial statements
3. Correction of Errors
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Accounting with Sanjaya
Introduction.
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The situation where accounting errors take place.
1. In preparing source documents.
2. In preparing prime entry books.
3. In preparing ledger.
4. In preparing trial balance.
4. Correction of Errors
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Accounting with Sanjaya
Type of accounting errors.
There are two types of errors.
1) …………………………………………………………………………………………………………………………………
2) …………………………………………………………………………………………………………………………………
Errors which are not shown by a trial balance.
1) Errors of omission.
2) Errors of commission.
3) Errors of originality.
4) Errors of principle.
5) Errors of compensating.
6) Errors of complete reversal.
01) Errors of omission.
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Example- Goods sold on credit to Ken, $700, had not been recorded in the books
The/General Journal
Description/Details Debit Credit
5. Correction of Errors
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Accounting with Sanjaya
02) Errors of Commission.
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Example: - Cash received from D Dias $200 entered correctly in Cash book but it was
entered by mistake in the account for G Dias.
The/General Journal
Description/Details Debit Credit
03) Errors of original entry.
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Example 1 – Goods sold on credit to Timmy , $960,had been recorded in the sales journal
as $690.
The/General Journal
Description/Details Debit Credit
Example 2 – Discount received amounting to $780 has been recorded in the books as
$870.
The/General Journal
Description/Details Debit Credit
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Accounting with Sanjaya
04) Errors of Principles.
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Example 1:- Purchase of a furniture worth $1000 has been debited to purchase account.
The/General Journal
Description/Details Debit Credit
Example 2 – Building repair expenses of $200 has been recorded in the Building Account.
The/General Journal
Description/Details Debit Credit
05) Errors of compensating.
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Example: - The Heating and lighting account had been under-cast by $300 and the
purchases account had been over-cast by $300.
The/General Journal
Description/Details Debit Credit
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Accounting with Sanjaya
06) Errors of complete reversal.
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Example: - Payment of $ 200 to Charles (who is a creditor) has been entered in correct
accounts but in incorrect sides.
The/General Journal
Description/Details Debit Credit
02) Errors affecting trial balance agreement
* Due to some errors the totals 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.
Suspense Account
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Reasons for disclosed errors
01) Omission of one entry.
02) Recording two different amounts.
03) Recording the double entry in the same side of the both accounts.
04) Errors in casting, balancing & transferring of prime entry books into ledger accounts.
05) Errors in preparation of the trial balance.
8. Correction of Errors
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Accounting with Sanjaya
Examples for disclosed errors
01) Omission of one entry
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Example: - Telephone bill paid $500 entered only in cash book but not in Telephone bill
account.
The/General Journal
Description/Details Debit Credit
02) Recording two different amounts
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Example: - Rent expenses paid, $1600, had been correctly entered in the cash book, but
had been recorded in the general expenses account as $6100.
The/General Journal
Description/Details Debit Credit
03) Recording the double entry in the same side of both accounts.
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Example: - Salary payment $1500 has been recorded in the debit side of both accounts.
The/General Journal
Description/Details Debit Credit
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Accounting with Sanjaya
04) Errors in casting, balancing & transferring of prime entry books into ledger
accounts.
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Example: - $350 has been under-cast in totaling the Sales Return Journal.
The/General Journal
Description/Details Debit Credit
05) Errors in preparation of the trial balance.
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Example: - $425 the balance of Discount Received Account has not been extracted to the
trial balance.
The/General Journal
Description/Details Debit Credit
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Accounting with Sanjaya
Statements of revised profit.
Sometime business has to prepare financial statements with a suspense accounts. That
means they prepare financial statements with errors for tax payment purpose or to present for
Annual General Meeting (AGM). Those financial statements are called incorrect or draft
financial statements and after identifying the errors the result of draft financial statements
should be rectified while rectifying the errors through double entries.
Then to rectify the result of draft Income Statement (draft profit or loss) a statement can be
prepared as follows.
The Statement of rectifying the draft profit
£ £
Draft profit ×××××
Add: Credit entries to expenses accounts (decrease in
expenses in correction)
×××
Credit entries to incomes accounts (increase in
incomes in correction)
××× ×××
×××××
Less: Debit entries to expenses accounts (increase in
expenses in correction)
×××
Debit entries to incomes accounts (decrease in
incomes in correction)
××× (×××)
Revised/Corrected profit ××××
16. Correction of Errors
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Accounting with Sanjaya
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Sanjaya Jayasundara
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