Errors of Commission The correct amount is entered but in awrong personal account
Example A purchase of goods from C.Lee hasbeen posted to the credit side of C.Lai’saccount in error, amounting to $500.The correcting entries should be:Original entry:Wrong entry:Dr Purchase $500Cr C Lee $500Dr Purchase $500Cr C Lai $500
$ $C.Lai 500C.Lee 500Purchases entered in wrong personal account, now corrected.The journal
Errors of Principle An item is entered in the wrong type ofaccount due to misunderstanding of thenature of the item.
Example Office equipment purchased for $1,000in cash has been debited to an officeexpenses account. The correctingentries should be:Original entry:Wrong entry:Dr Office Equipment $1000Cr Cash $1000Dr Office Expenses $1000Cr Cash $1000
$ $Office Equipment 1,000Office Expenses 1,000Purchase of office equipment wrongly entered in the office expensesaccount, now corrected.The journal
Errors of Original Entry Wrong original figure is entered in thejournals, and hence posted incorrectlyto the accounts.
Example A payment of $1,200 to a creditor,M.Wong, has been entered as both adebit and credit as $1,000. Thecorrecting entries should be:Original entry:Wrong entry:Dr Mr. Wong $1200Cr Bank $1200Dr Mr. Wong $1000Cr Bank $1000
$ $M Wong(1200-1000) 200Bank 200Payment of $1,200 incorrectly entered as $1,000, now corrected.The journal
$M. WongBank 1,000Bank 200$BankM. Wong 1,000M. Wong 200
Errors of Omission A transaction has been completelyomitted from the accounts.
Example A sale of $400 to John Leung has beencompletely omitted from the accounts.The correcting entries should be:Original entry:Wrong entry:Dr John Leung $400Cr Sales $400No entry
$ $John Leung 400Sales 400A sale of $400 was omitted, now corrected.The journal
Complete Reversal of Entries The correct amounts are entered in thewrong sides of the two appropriateaccounts.
Example The purchase of goods on credit fromM. Lok for $60 was entered on the debitside of M. Lok’s account and the creditside of the purchases account. Thecorrecting entries should be:Original entry:Wrong entry:Dr Purchase $60Cr M Lok $60Dr M Lok $60Cr Purchase $60
$ $Purchases ($60 x 2) 120M. Lok ($60 x 2) 120Purchases from M. Lok incorrectly debited to his account andcredited to the purchases account, now corrected.The journal
$$M. Lok 120PurchasesM. Lok 60$$Purchases 60M. LokPurchases 120
Errors affecting trial balanceagreement may occur when (i) recording transactions in theaccounts:– (1) omitting a debit or credit entry– (2) posting a wrong amount to one of theaccounts– (3) recording an entry on the wrong side• E.g. a debit entry entered as a credit or a creditentry as a debit
(ii) Balancing of accounts:Incorrect calculation of a balance– E.g. overcast or undercast (iii) Drawing up a trial balance:(1) omitting a balance from the trial balance(2) incorrectly posting an amount to the trialbalance(3) incorrectly posting a balance to the wrongside of the trial balance
Suspense Account When the trial balance does not agree,the amount of the difference is enteredin a suspense account.
$ $Total balances extracted 90 100Suspense account 10100 100Trial Balance as at 31 December 1996
$Suspense AccountDec 31 Difference per trialbalance 101996
How To Show a SuspenseAccount on the Balance Sheet
$ $Fixed Assets XCurrent Assets XLess Current Liabilities XWorking Capital XSuspense Account (X)XVertical formBalance Sheet
Correction of Errors To correct the errors, students shouldmake correcting entries in the ledgeraccounts first, and hence clear thesuspense accounts.
ExampleOriginal entry:Wrong entry:Dr Mr Chan $150Cr Sales $150Dr -Cr Sales $150A credit sale of $150 to Mr Chan hasbeen omitted from his account.Correct entry: Dr Mr. Chan $150Cr Suspense $150
ExampleOriginal entry:Wrong entry:Dr C Lee $230Cr Sales $230Dr C Lee $320Cr Sales $230Correct entry: Dr Suspense $90Cr C Lee $90A sale to C. Lee for $230 was correctlyentered in the sales book but entered in C.Lee’s account as $320.
Original entry:Wrong entry:Dr H Cheung $97Cr Sales $97Cr H Cheung $97Cr Sales $97Correct entry: Dr H Cheung (97*2) 194Cr Suspense $194ExampleA credit sale of $97 has been creditedto H. Cheung’s account.
Correct entry: Dr Sales $200Cr Suspense $200 Sales day book was overcast by $200.Example
Correct entry: Dr Suspense $40Cr Sales $40 Sales day book was undercast by $40.Example
Correction of Errors A single entry in the suspense account. This occurs when errors are made inextracting balances, rather than in therecording phase.
Correct entry: Dr Suspense $1500Example The total of the sales account of $1,500has been omitted from the trial balance.
Correct entry: Dr Suspense $200Example The total of the sales account of $1,500has been extracted as $1300 in the trialbalance.
Correct entry: Dr Suspense (1500*2) $3000Example The total of the sales account of $1,500has been extracted to the debit column ofthe trial balance.
Correction of Errors and Effectson the Profit and Balance Sheet For errors affecting the final accounts(I.e. profit calculation and balancescarried down) Corrections are also required for theprofit/loss and balances in the balancesheet.
1storderSale increase Cr. Sales Increase in NetProfitOpening stockincreaseDr. Stock Decrease in NetProfitPurchasesincreaseDr. Purchases Increase in NetProfitClosing stockincreaseDr. Stock Increase in NetProfit2ndorder 3rdorder
Profit and loss account:Gross Profit + Income (e.g. Rent received) – Expenses (e.g.Motor expenses) = Net Profit1storderIncomeincreaseCr. Income Increase in NetProfitExpensesIncreaseDr. Expenses Decrease in NetProfit2ndorder 3rdorder