BUS2013

FINANCIAL ACCOUNTING
CHAPTER 7:
CORRECTION OF ERRORS

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 CORRECTION OF ERRORS

• BEFORE THE FINAL ACCOUNTS ARE PREPARED, A TRIAL BALANCE WILL BE

PREPARED BEFOREHAND IN ORDER TO TEST WHETHER THERE ARE ERRORS
MADE OR NOT. HOWEVER, EVEN IF THE TWO SIDES OF THE TRIAL BALANCE
AGREE WITH EACH OTHER, THERE MAY STILL BE ERRORS MADE.
• THE FOLLOWING WILL DISCUSS THOSE ERRORS WHICH DO NOT AFFECT THE
AGREEMENT OF TRIAL BALANCE FIRST AND THEN THOSE ERRORS AFFECTING
THE BALANCE AGREEMENT.

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ERRORS NOT AFFECTING THE AGREEMENT
OF TRIAL BALANCE
WHEN MISTAKES ARE DISCOVERED, THE NECESSARY
CORRECTING ENTRIES MUST BE MADE BY JOURNAL.
EXAMPLES WITH CORRECTING JOURNAL ENTRIES ARE
ILLUSTRATED FOR THE FOLLOWING ERRORS:
• ERROR OF OMISSION ( 遺漏錯誤 )
• ERRORS OF COMMISSION ( 帳名調亂錯誤 )
• ERROR OF PRINCIPLE ( 原則性錯誤 )
• ERROR OF ORIGINAL ENTRY ( 原始分錄錯誤 )
• REVERSAL ERRORS ( 顛倒入帳錯誤 )
• COMPENSATION ERRORS ( 抵消性錯誤 )
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 ERROR OF OMISSION ( 遺漏錯誤 )

• THE ABSENCE OF BOTH DEBIT AND CREDIT ENTRIES

• EG. CASH SALES $100 HAS BEEN COMPLETELY OMITTED FROM THE BOOKS.
DR. CASH $100 CR. SALES $100

Cash
Sales $100

Sales
Cash $100
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 ERRORS OF COMMISSION ( 帳名調亂錯誤 )

• THE POSTING IS MADE TO THE CORRECT SIDE BUT OF A WRONG PERSONAL ACCOUNT.
• EG. GOODS $100 SOLD TO MR. CHAU HAS BEEN DEBITED TO MRS. CHOW'S ACCOUNT.
DR. MR. CHAU $100 CR. MRS. CHOW $100

Mrs. Chow
Sales $100 Mr. Chau $100

Mr. Chau
Mrs Chow $100

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 ERROR OF PRINCIPLE ( 原則性錯誤 )

• WRONG CLASS OF ACCOUNT IS POSTED.

• EG. MOTOR VEHICLE ACCOUNT WAS DEBITED FOR MOTOR EXPENSES $100 PAID.
DR. MOTOR EXPENSES $100 CR. MOTOR
VEHICLE $100

Motor Vehicle
Cash $100 Motor Expenses $100

Motor Expenses
Motor Vehicle $100
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 ERROR OF ORIGINAL ENTRY ( 原始分錄錯誤 )

• THE ORIGINAL FIGURE IS ENTERED INCORRECTLY IN BOTH ACCOUNTS.

• EG. GOODS $100 SOLD TO MR. CHENG HAD BEEN ENTERED AS $1,000 IN SALES
BOOK.
DR. SALES $900 CR. MR. CHENG $900

Mr. Cheng
Sales $1,000 Sales $900

Sales
Mr. Cheng $900 Mr. Cheng $1,000
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 REVERSAL ERRORS ( 顛倒入帳錯誤 )

• THE ACCOUNT WHICH SHOULD BE DEBITED HAS BEEN CREDITED AND VICE VERSA.
• EG. A RECEIPT OF CASH OF $100 FROM MR. CHOI WAS ENTERED ON THE PAYMENT
SIDE OF THE CASH BOOK IN ERROR AND DEBITED TO HIS ACCOUNT.
DR. CASH $200 CR. MR. CHOI $200

Cash
Mr. Choi $200 Mr. Choi $100

Mr. Choi
Cash $100 Cash $200 8
 COMPENSATION ERRORS ( 抵消性錯誤 )

• ERRORS WHICH CANCEL EACH OTHER OUT.

• EG. THE SALES AND THE SALARIES ACCOUNT WERE BOTH UNDERSTATED BY $100.
DR. SALARIES $100 CR. SALES $100

Salaries
Sales $100

Sales
Salaries $100
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ERRORS AFFECTING THE AGREEMENT OF
TRIAL BALANCE

• THOSE ERRORS WHICH THROW THE TOTALS OF THE TRIAL BALANCE OUT OF
AGREEMENT SHOULD BE MADE TO AGREE WITH EACH OTHER BY INSERTING
THE AMOUNT OF THE DIFFERENCE BETWEEN THE TWO SIDES IN A
SUSPENSE ACCOUNT.
• IF THE ERRORS ARE NOT FOUND BEFORE THE FINAL ACCOUNTS ARE
PREPARED, THE BALANCE IN SUSPENSE ACCOUNT WILL BE SHOWN ON THE
BALANCE SHEET. IT MAY BE UNDER CURRENT LIABILITIES IF IT IS A
CREDIT BALANCE, OR UNDER CURRENT ASSETS IF IT IS A DEBIT
BALANCE.
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 ERRORS IN CALCULATION (OVERCAST OR
UNDERCAST)
• EG. THE TOTAL OF THE SALES DAY BOOK HAD BEEN OVERCASTED BY $100.
DR. SALES $100 CR. SUSPENSE $100

Sales
Suspense $100 Balance b/d(overcast) $100

Suspense
Balance b/d $100 Sales $100

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 ERRORS IN POSTING
a) POST A WRONG AMOUNT TO ONE OF THE ACCOUNTS.
• EG. GOODS $190 SOLD TO MR. TANG HAD BEEN POSTED TO HIS ACCOUNT IN
ERROR AS $910.
DR. SUSPENSE $720 CR. MR. TANG $720

Mr. Tang
Sales $910 Suspense $720

Suspense
Mr. Tang $720 Balance b/d $720
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 ERRORS IN POSTING
b) POST THE AMOUNT TO THE WRONG SIDE.
• EG. GOODS $100 SOLD TO MR. SO HAD BEEN POSTED TO THE CREDIT OF HIS
ACCOUNT.
DR. MR. SO $200 CR. SUSPENSE $200

Mr. So
Suspense $200 Sales $100

Suspense
Balance b/d $200 Mr. So $200

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 ERRORS OF OMISSION
(OMITTING ENTRY IN EITHER SIDE)
• EG. CASH PAYMENT OF $100 WAGES HAD NOT BEEN POSTED FROM THE CASH
BOOK.
DR. WAGES $100 CR. SUSPENSE $100

Wages
Suspense $100

Suspense
Balance b/d $100 Wages $100

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 ERRORS IN EXTRACTING THE TRIAL
BALANCE
a) OMITTING BALANCE FROM SOME ACCOUNTS.
b) INCORRECTLY DRAW UP THE AMOUNT IN THE TRIAL BALANCE.
c) INCORRECTLY WRITE THE AMOUNT TO THE WRONG SIDE OF THE TRIAL
BALANCE.

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 STATEMENT OF CORRECTED NET PROFIT

• THE NET PROFIT WILL HAVE BEEN INCORRECTLY STATED FOR THE PERIOD
WHEN THE ERRORS WERE MADE BUT UNDETECTED.
• THE PERIOD'S PROFIT WILL OFTEN BE AFFECTED BY THE CORRECTION OF
THE ERRORS, THEN
• A STATEMENT OF CORRECTED NET PROFIT HAS TO BE PREPARED.
• A SUSPENSE ACCOUNT CAN THEN BE CLOSED AFTER THE CORRECTIONS.

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 EXAMPLE 1
A TRIAL BALANCE WAS EXTRACTED ON 31 DECEMBER 20X5. A SHORTAGE
OF $330 APPEARED ON THE CREDIT SIDE OF THE TRIAL BALANCE. A
SUSPENSE ACCOUNT WAS OPENED BEFORE THE FINAL ACCOUNTS WAS
PREPARED. THE FOLLOWING ERRORS WERE FOUND IN JANUARY 20X6.
(1) SALES DAY BOOK HAD BEEN UNDERCAST BY $100.
(2) SALES OF $250 TO MR. FONG HAD BEEN DEBITED IN ERROR TO MR. KONG'S ACCOUNT.
(3) RENT ACCOUNT HAD BEEN UNDERCAST BY $70.
(4) DISCOUNT RECEIVED ACCOUNT HAD BEEN UNDERCAST BY $300.
(5) THE SALE OF A MOTOR VEHICLE AT BOOK VALUE HAD BEEN CREDITED IN ERROR TO
SALES ACCOUNT $360.

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 REQUIRED:

(A) SPECIFY THE EFFECTS OF THE ABOVE ERRORS ON THE TRIAL BALANCE.
(B) SHOW THE JOURNAL ENTRIES NECESSARY TO CORRECT THE ERRORS.
(C) DRAW UP THE SUSPENSE ACCOUNT AFTER THE ERRORS DESCRIBED
HAVE BEEN CORRECTED.
(D) IF THE NET PROFIT HAD PREVIOUSLY BEEN CALCULATED AT $7,900 FOR
THE YEAR ENDED 31 DECEMBER 20X5, PREPARE A STATEMENT OF
CORRECTED NET PROFIT.

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