Errors & The Suspense Account | Accounting for GCSE/IGCSE - Year 11 PDF Download

Errors Which Affect The Trial Balance

Which errors affect the trial balance?

• There are some errors that are identified by the trial balance
• The most common reasons for these types of errors are:
  • Addition errors
  • Posting errors
  • Unequal posting errors
  • Partial omission errors

Which are addition errors?

• Addition errors in accounting can occur due to various reasons:
  • A calculation error might be made when balancing an account.
  • A numerical mistake could happen when totaling the debits or credits in the trial balance.
• For instance, imagine a scenario where a business mistakenly adds two entries in the drawings account incorrectly:
  • The business records $550 and $450 in the drawings account.
  • Instead of totaling these correctly as $1000, they erroneously sum it up as $910.

Which are posting errors?

• Posting errors occur when both entries of a transaction are made on the same side of the accounts. This means that both entries are either entered as debits or as credits.
• Example of Posting Error: A business pays $500 for rent. The rent account is debited $500, and the bank account is debited $500. This should actually be a credit entry.

Which are unequal posting errors?

• When a transaction is recorded with different amounts in two accounts, unequal posting errors occur.
• Transposition errors are a common type of unequal posting mistake, where digits are mistakenly entered in the incorrect sequence.
  • An example of this is when a business makes a credit sale of $52, but mistakenly records $52 in the sales account and $25 in the trade receivables account due to a mix-up in digits.

Which are partial omission errors?

• Partial omission errors occur when a transaction is recorded only once in the ledger accounts, and the debit or credit entry is missing.
• For instance, imagine a scenario where a business takes $200 worth of goods for personal use. They correctly debit the drawings account but inadvertently forget to credit the purchases account.

Suspense Account

What is a suspense account?

• A suspense account is utilized to rectify errors when the totals in the trial balance do not match.
• It serves as a temporary account that should be fully reconciled once all errors are rectified.

How do I use a suspense account to correct errors?

• Step 1: Calculate the variance between the total debits and total credits in the trial balance.
• Step 2: Input this variance into a suspense account, placing it on the side with the lower total, and designate the entry as "Difference on trial balance."
• Step 3: Correct the errors by making entries in the ledger accounts, labeling them as "Suspense account."
• Step 4: Counterbalance these entries by making corresponding entries in the suspense account, positioned on the opposite side from the entries that rectified the error.
• Step 5: Close the suspense account once all errors have been addressed. The suspense account should naturally balance. If not, it indicates remaining errors.

How do I find the difference in the totals on the trial balance?

• You could be given a list of errors and asked to find the difference in the totals on the trial balance.
• Correct the errors using the suspense account.
• Balance the suspense account:
  • Label the balancing entry as "Difference on trial balance".
  • The side that this entry appears on is the side which had the smaller total on the trial balance.
• The side that this entry appears on is the side which had the smaller total on the trial balance.