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Suspense Account and Errors

- Suspense accounts are used to balance the trial balance when totals do not agree due to errors. Amounts are inserted in suspense accounts until the errors are identified and corrected. - Common errors include incorrect additions, single-entry transactions (debit without credit), and entering different amounts on debit/credit sides. - When errors are found, correcting journal entries are made to adjust the affected accounts. The suspense account is also adjusted through a correcting entry to balance it. - Examples show correcting entries for undercasting sales by debiting sales and crediting suspense, and failing to enter a payment by debiting the customer and crediting suspense.

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2K views11 pages

Suspense Account and Errors

- Suspense accounts are used to balance the trial balance when totals do not agree due to errors. Amounts are inserted in suspense accounts until the errors are identified and corrected. - Common errors include incorrect additions, single-entry transactions (debit without credit), and entering different amounts on debit/credit sides. - When errors are found, correcting journal entries are made to adjust the affected accounts. The suspense account is also adjusted through a correcting entry to balance it. - Examples show correcting entries for undercasting sales by debiting sales and crediting suspense, and failing to enter a payment by debiting the customer and crediting suspense.

Uploaded by

shadedrose
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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SUSPENSE ACCOUNT AND

ERRORS
After watching this presentation, you should be
able to:
- explain why a suspense account may be used

- create a suspense account in order to balance


the trial balance
- use Journal with suspense account
There are many errors that will affect the trial balance agreement.

These include:

• incorrect additions in any account

• making an entry on only one side of the accounts, e.g. a debit

entry but no credit entry; vice versa

• entering a different amount on the debit side from the amount of

credit side
SUSPENSE ACCOUNT
 When the totals of Trial Balance do not
agree, the amount of difference is inserted
in a suspense account.
 For example, Tim’s trial balance shows
difference; debit side is $500 more than the
credit side. Suspense account is opened:
Suspense Account
$ $
Trial balance 500
difference
CORRECTION OF ERRORS
 When the errors are found they must be
corrected, using double entry.
 Correct the error using Journal.
 Then, post to the suspense account.
ERROR EXAMPLE 1
Sales account was under cast by $40.
Notes:
The error is only in the Sales account. That means
the other entry is correct, and the trial balance will
not balance due to difference in amounts.

Suspense account is involved.

Sales are credited. Here, $40 more has to be added.


Therefore, the following entries will be made:

Credit Sales Account : $40

Which other account is involved? Suspense Account!


Debit suspense account: $40
ERROR EXAMPLE 1
Sales account was under cast by $40.
Journal
$ $
Suspense 40
Sales 40
ERROR EXAMPLE 1
Sales account was under cast by $40.

 Post to Suspense Account


$ $
Trial balance 500
difference
Sales 40
ERROR EXAMPLE 2
Aaron made a payment of $168 to K leek to
close her account. It was correctly entered in
the Cash Book, but was not entered in K
Leek’s account.

Notes:

 First of all, Didi’s account should have been


debited with $168.

 Second, suspense account is credited with $168 so


that the account can be closed.
ERROR EXAMPLE 2
Aaron made a payment of $168 to K leek to
close her account. It was correctly entered in
the Cash Book, but was not entered in K
Leek’s account.
Journal

$ $
Suspense 40
Sales 40

K Leek 168
Suspense 168
ERROR EXAMPLE 2
Aaron made a payment of $168 to K leek to
close her account. It was correctly entered in
the Cash Book, but was not entered in K
Leek’s account.

 Post to Suspense Account


$ $
Trial balance 500
difference
Sales 40
K Leek 168
TRY THIS QUESTION
 The trial balance at 31 December 2007 showed difference of $77, being a

shortage on the debit side. A suspense account is opened, and the

difference of $77 is entered on the debit side of the account.

 On 28 Feb, 2008, all the errors were found.

1) A cheque of $150 paid to L Kent had been correctly entered in the Cash

Book, but had not been entered in Kent’s account.

2) The purchases account had been undercast by $20.

3) a cheque of $93 received from K Sand had been correctly entered in the

Cash Book, but had not been entered in Sand’s account.

Correct the above errors using Journal and balance the suspense account.

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