Errors & Suspense Account

1. Errors & the Trial Balance

Error = something that goes wrong while making the accounts. In real life we tear the page / use whitener — in accounting we NEVER do that.

Trial balance (TB) = list of all balance b/d from the T-accounts at the end of a period (closing c/d of last period = b/d of this one).

• Debit side: Assets, Expenses, Drawings
• Credit side: Liabilities, Income, Capital
• When a T-account is balanced: shorter side gets balance c/d, bigger side gets balance b/d

2. Six Errors that do NOT Affect the TB

Every one of these leaves total Dr = total Cr, so the TB cannot detect it. Learn them with COP ROCK:

① Error of COMMISSION

Definition: correct amount, entered in the wrong person’s / wrong account — but the class (type) of account is right and Dr/Cr side is right. (Not the “broker’s commission” meaning!)

Board eg: sale of $11 to ARD entered in AKD’s a/c — both are personal accounts (debtors).

• Bought from Mr X, credited Mr Y — both suppliers
• Paid by bank, credited cash instead of bank — both current assets
• Paid rent, debited insurance — both expenses

Why TB can’t see it: the TB can’t tell one debtor from another (or one expense from another) — Dr is still Dr, Cr still Cr.

Correction (journal, single amount): Dr ARD $11, Cr AKD $11 (remove from AKD, put in ARD).

② Error of OMISSION

Definition: a transaction is completely left out — neither debited nor credited anywhere.

Board eg: sold goods $90 to ARD but did not enter in sales or ARD’s a/c.

Why TB can’t see it: Dr side AND Cr side are both short by $90 → totals are wrong but still equal.

Correction: just make the entry that was forgotten — Dr ARD $90, Cr Sales $90.

③ Error of PRINCIPLE

Definition: wrong account and wrong class / category of account (e.g. capital expenditure treated as revenue expenditure, or vice-versa).

Board eg: purchase of a van (fixed asset) debited to motor expenses (expense).

• Motor vehicle (asset) → debited to motor expense (P&L)
• Capital introduced: Dr Bank, but credited loan instead of capital
• Capital used instead of liability · income used instead of loan

Why TB can’t see it: the category changed but the side did not — asset → expense (both Dr), liability → capital (both Cr).

Bigger crime = Principle (sir’s joke) — because both the account and its category are wrong.

Correction: Dr Motor vehicle, Cr Motor expenses (single amount; X = cost of the van).

④ Complete REVERSAL of entries

Definition: correct accounts used, but each item is on the wrong side — the account that should be debited is credited and vice-versa.

Board eg: cheque paid to ARD $200. Correct: Cr Bank 200, Dr ARD 200. Error: Cr ARD 200, Dr Bank 200. TB totals still agree.

Why double? (sir’s example: ARD pays us $200 → correct Dr Bank, Cr ARD; error was Cr Bank, Dr ARD)

Board cheque example (paid to ARD, error reversed): correction Dr ARD 400, Cr Bank 400.

⑤ Error of ORIGINAL ENTRY

Definition: Dr/Cr, accounts and class are all right — the amount is wrong but the same wrong figure is used on both sides, so double entry is still kept.

Board eg: sales invoice of $150 miscalculated as $130 → Cr Sales 130, Dr customer 130. TB still balances.

Sir’s eg: sold goods to ARD for $100, recorded $1,000 → Dr & Cr both over by 900.

Board numbers: $150 − $130 = $20 short ⇒ Dr customer 20, Cr Sales 20.

⑥ COMPENSATING errors

Definition: two (or more) separate errors that cancel each other out — net effect on the TB is zero.

Board eg: Sales a/c added up $10 too much AND Purchases a/c added up $10 too much ⇒ Cr side +10, Dr side +10 ⇒ both TB totals are $10 too high but still agree.

Sir’s eg: purchases overstated $500 (Dr +500) and sales overstated $500 (Cr +500). Or: incomes understated and expenses understated by the same amount.

3. Errors that DO Affect the TB

Here the TB is out of balance — Dr total ≠ Cr total. These have no fancy names and the examiner does not ask for names.

Double entry breaks when:

1. Only a debit entry is made (credit forgotten)
2. Only a credit entry is made (debit forgotten)
3. Both made, but with different amounts (e.g. Dr 1,000 / Cr 100)

Suspense a/c can arise only if the error is on one side of an account — if the same error hits both sides equally the TB still agrees.

4. Suspense Account

Definition: At year-end every business prepares a TB (for the income statement & balance sheet). If errors make Dr ≠ Cr, the accountant must find and fix them. If the errors can’t be found, the TB is made to agree by inserting the difference as a “SUSPENSE ACCOUNT”.

• It is a temporary account — only until the errors are found & rectified (cleared).
• It can sit on either side (“no faith of suspense — can come on any side”).
• If still present in the balance sheet: Dr balance ⇒ asset, Cr balance ⇒ liability.
• Errors may change net / gross profit or the balance sheet — know how each error affects the financial statements.

Eg (sir): Dr = 10,000, Cr = 9,000 ⇒ shorter side = credit ⇒ insert suspense 1,000 on the credit side to make both sides 10,000.

Casting terms (board)

The examiner uses “overcasted” and “overstated” to mean the same thing.

(The last board line is cut off in the PDF; “under-casted” meaning is taken from the visible words.)

5. Method — Journal + Suspense A/c

Dr is bigger ⇒ credit is the shorter side ⇒ suspense opens with $5,000 on the credit side.

Error ① Sales over-casted $1,000

Sales (income) goes up by credit — we over-credited it, so debit Sales to reduce. Nothing to credit ⇒ Suspense Cr.

Error ② Purchases over-casted $2,500

Purchases (stock in / expense) goes up by debit — over-debited, so credit Purchases to reduce. Nothing to debit ⇒ Suspense Dr.

Error ③ Payment to creditor $3,500 not in cash book

Paying a supplier = Dr Trade payables (liability falls) and Cr Bank. We did the Dr (creditor a/c) but forgot the Cr Bank. So credit Bank now; Trade payables is already debited ⇒ the debit goes to Suspense Dr.

Journal entries

If the “difference as per TB” is NOT given

The examiner may not tell you which side of the TB was bigger. Then:

1. Leave one blank line on both the Dr side and the Cr side (you don’t know which side the difference falls on).
2. Post all the journal entries.
3. Add up each side and find which is bigger — here Dr = 6,000, Cr = only 1,000.
4. Difference = 6,000 − 1,000 = 5,000 ⇒ write it on the shorter side (credit) as “Difference as per TB”.