Errors Affecting the Trial Balance

ERRORS AFFECTING THE TRIAL BALANCE: ERRORS AFFECTING THE TRIAL BALANCE Done by: Brian Henry Key Terms: Key Terms A Trial Balance This is a list of accounts arranged according to debit and credit balances Suspense A/C An account in which you can enter the amount equal to the difference on the trial balance Overcast Too much Undercast Too little What is a trial balance: What is a trial balance A Trial Balance is a list of accounts arranged according to debit and credit balances Details Debit $ Credit $ Purchases 500 Sales 750 Cash 100 Returns Outwards 50 Debtor: B. Brown 300 Creditor: H. Allen 100 900 900 B. Henry Trial balance as at December 31, 2011 Types of Errors: Types of Errors Errors can be classified into two main categories: Errors not affecting the Trial Balance Errors affecting the Trial Balance Errors affecting the Trial Balance : Errors affecting the Trial Balance These are errors which cause the Trial Balance totals to be in disagreement . For example: Errors in Omission of One Entry Posting to the Wrong Side of An Account Errors in Amount Errors in Omission of One Entry : Errors in Omission of One Entry The omission of either the debit or credit entry of a transaction. E.g. A cheque $500 received for commission was debited to the Bank Account only Should Happen: Debit: Bank Credit: Commission Rec . Happened: Debit: Bank Credit: No account Posting to the Wrong Side of An Account : Posting to the Wrong Side of An Account Posting an entry to the wrong side of an account E.g. A cheque of $800 paid to creditor, K. Wang was credited instead of debited to his account. Should Happen: Debit : K. Wang Credit: Bank Happened: Debit: Bank Credit: K. Wang Errors in Amount : Errors in Amount Where the debit entry of a transaction differs in amount from the credit entry. E.g. Cash $134 received from Brian was debited to the Cash Account as $134 and credited to the account of Brian as $143. Should Happen: Debit : Cash (134) Credit: Brian (134 ) Should Happen: Debit : Cash ( 134 ) Credit: Brian (143) Suspense account : Suspense account If the trial balance does not balance as a result of any of these errors, the suspense account should be opened for the difference. The difference must be entered on the side with the smaller total. e.g. if the cr side of the trial balance is smaller, the difference should be entered on the cr side of the suspense A/C Trial balance as at December 31, 2008: Trial balance as at December 31, 2008 Details Debit Credit $ $ Totals after all the accounts have been listed 100 000 99 960 Suspense 40 100 000 100 000 Suspense A/C Dec 31 2011 Difference as per trial balance $ 40 Credit side short by $40 Difference entered as suspense Correction of errors: Correction of errors When the errors that resulted in this difference are found, they must be corrected using double entry. One entry must be in the suspense account The other entry must be in the account where the error was made. PowerPoint Presentation: Assume that the cause of the error of $40 was found on February 31, 2012. The error was that: The sales A/C was undercast by $40 To correct this error: Debit: Suspense A/c $40 to close it off Credit: Sales A/C $40 to show where it should have been PowerPoint Presentation: Suspense Account 2012 2012 2012 Jan 1 Feb 31 Sales Feb 31 Suspense 40 $ 40 $ 40 $ Sales A/C Balance b/d The from 2011

The journal: The journal In order to complete the correction of the error, a journal entry must be made. The journal entry makes it possible to understand why the entries were made in the double entry. Steps in making journal entry: Steps in making journal entry Enter the account in which the debit entry was made Indent and enter the account in which the credit entry was made Write a short description (Narrative) of what is being done The Journal : The Journal Date Details Debit Credit 2012 $ $ Feb 31 Suspense 40 Sales 40 Correction of understated sales in the previous year. A /C in which Dr entry was made Indent for A/C in which credit entry was made Narrative PowerPoint Presentation: ASSESSMENT Instruction: Instruction Click on a monetary value in the game board and answer the question. If the question is correct, you will be awarded the money. If the answer is incorrect you will suffer the loss. BEGIN ERRORS JEPORDY GAME : ERRORS JEPORDY GAME 100 200 300 400 500 100 200 300 400 500 100 200 300 400 500 9. True / false?: 9. True / false? The income statement and balance can still be prepared even in the trial balance totals do not agree. True False 10. True / False: 10. True / False The difference between trial balance totals should be entered in the trial balance as suspense on the side with the larger total. False True 10. True / False: 10. True / False The suspense account must reflect the total of the smaller side of the trial balance. False True 1. What does the word overcast means in accounts?: 1. What does the word overcast means in accounts? About to rain B. Dark C. Too much D. All of the above 1. What does the word Undercast means in accounts?: 1. What does the word Undercast means in accounts? Printed B. Buried D. All of the above C. Too little 1.Which of the following best describe the suspense account?: 1.Which of the following best describe the suspense account? A. An account in which you can enter the amount equal to the difference on the trial balance B. An account in which you can enter the amount equal to the difference on the balance sheet C . An account in which you can enter the amount equal to the difference on the journal D. All of the above 5. Which of the following errors will affect the trial balance?: 5. Which of the following errors will affect the trial balance? Error of principles B. Error of compensation C. Single entry D. Error of original entry 5. Which of the following errors will NOT affect the trial balance?: 5. Which of the following errors will NOT affect the trial balance? Error of principles B. Single entry C. Overcast D. Undercast 6. Where are the balances in a trial balance taken from?: 6. Where are the balances in a trial balance taken from? Ledgers B. Balance sheet C. Invoice D. All of the above

4. If a trial balance CR total is greater than its DR total which account is opened to reflect the difference?: 4. If a trial balance CR total is greater than its DR total which account is opened to reflect the difference? Suspense a/c B. Sales a/c C. Commission a/c D. Profit/loss a/c If the sales account is Undercast by $20 which of the transactions would correct the error?: If the sales account is Undercast by $20 which of the transactions would correct the error? DR-Sales & CRSuspense($20) DR-Sales & CR-Cash($20) CR-Sales & DR- Cash($20) CR-Sales & DR- Suspense($20) 3. All of the following errors would be corrected through suspense a/c EXCEPT?: 3. All of the following errors would be corrected through suspense a/c EXCEPT? Sales a/c overcast by $56 B. Both the purchases and the sales a/c were added up to be $54 too much C. Rent paid by cash was not entered in the cash a/c D. Purchases was Undercast by $89 7. How do I increase an account that is always credit?: 7. How do I increase an account that is always credit? By doing a debit to the a/c B. By doing both a debit & a credit to the a/c C. By doing a credit to the a/c D. None of the above 7. How do I increase an account that is always debited?: 7. How do I increase an account that is always debited? By doing a debit to the a/c B. By doing both a debit & a credit to the a/c C. By doing a credit to the a/c D. None of the above 8. If the smaller total of a trial balance falls on the DR side, which side of the suspense a/c should the difference be entered?: 8. If the smaller total of a trial balance falls on the DR side, which side of the suspense a/c should the difference be entered? Credit side B. Both sides C. No sides D. Debit side