SUSPENSE ACCOUNTS AND ERRORS

1
SUSPENSE ACCOUNTS AND ERRORS

• In practice there are occasions when a trial
  balance will not balance. It is standard
  procedure to make the trial balance, balance
  by placing the difference into a suspense
  account, as a temporary measure until the reasons
  for the difference are uncovered.

2
Q33.6A (Adopted)

• Gail Dawson is the owner of a retail business.
  She has employed an inexperienced book-keeper to
  maintain her accounting records.
• On 31 March 2009, the end of the businesss
  accounting year, the bookkeeper extracted the
  following trial balance

3
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Stock (31/03/2009) 2,960
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90
• 66,860 49,972

4
SUSPENSE ACCOUNTS

• The trial balance clearly does not balance.
• This means that errors have occurred which can be
  detected by the preparation of a trial balance,
  for example
• Incorrect additions in an account, or book of
  original entry.
• Making either a debit or credit entry, without
  making the corresponding entry.
• Entering a different amount on the debit side
  from the amount on the credit side.
• Reversing some entries (debit an account, when
  it should be credited), but not all entries.
• Incorrect preparation of the Trial Balance.

5
SUSPENSE ACCOUNTS

• Can you identify any problems with the
  presentation of the original trial balance?

6
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Stock (31/03/2009) 2,960
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90
• 66,860 49,972

7
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Stock (31/03/2009) 2,960
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90

8
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Stock (31/03/2009) 2,960
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90

9
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90

10
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90

11
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90

12
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90

13
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90

14
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90

15
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90

16
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90

17
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90

18
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90

19
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90

20
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90
• 56,796 57,076

21
SUSPENSE ACCOUNTS

• The trial balance still does not balance.
• As a temporary measure, the trial balance is
  made to balance by inserting the difference
  into a suspense account.

22
SUSPENSE A/c

• Difference as per
• trial balance 280

23
SUSPENSE ACCOUNTS

• The trial balance would now appear as follows

24
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,300
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Trade Debtors 1,825
• Trade Creditors 864
• Balance at bank (overdrawn) 382
• Capital 26,860
• Drawings 7,740
• Sales 26,080
• Purchases 18,327
• Running expenses 6,904
• Provision for doubtful debts 90
• Suspense 280
• 57,076 57,076

25
SUSPENSE ACCOUNTS

• At this stage it is necessary to investigate
  further, in order to determine, why there is
  still a difference in the trial balance.
• Q33.6A continues as follows

26
SUSPENSE ACCOUNTS

• The following errors were found in the
  accounting records after the initial trial
  balance was prepared
• The total of the Sales Day Book for December 2008
  had been overstated by 120.
• In January 2009 some new office equipment had
  been purchased for 360 this had been debited
  to the purchases account.
• A payment by cheque, to a creditor (supplier)
  216, had been entered in the books of original
  entry as 261.
• A sales credit note for 37 sent to a customer
  had been not been recorded in any of the books of
  original entry.
• The owner had withdrawn a cheque for 80 for
  private use in October 2008 both the bank and
  drawings account had been credited with this
  amount.

27
JOURNAL ENTRIES

• When such errors are discovered they MUST be
  corrected, using the double entry system.
• Each correction MUST first be recorded in the
  Journal, describing the nature of the error, and
  then POSTED to the actual accounts concerned.

28
JOURNAL ENTRIES

• (Folio) Dr Cr
• Sales A/c 120
• Suspense A/c 120
• Sales Day Book overcast by 120, in December
  2008.
• Office Equipment 360
• (FIXED ASSET)
• Purchases A/c 360
• Purchase of fixed assets incorrectly treated as
  purchases.

29
JOURNAL ENTRIES

• (Folio) Dr Cr
• Bank A/c 45
• Creditors (name) 45
• Error of original entry in the Cash Book
  corrected, see Cash Book page ? And bank
  statement (reference).
• Sales 37
• Debtors (name) 37
• Credit note sent to customer (name) overlooked.

30
JOURNAL ENTRIES

• (Folio) Dr Cr
• Drawings 160
• Suspense 160
• Incorrect treatment of drawings in October,
  drawings account should have been debited with
  80, incorrectly it was credited with 80.

31
SUSPENSE A/c

• Difference as per
• trial balance 280
• Journal (folio ref) 120
• Journal (folio ref) 160
• 280 280

32
SUSPENSE ACCOUNTS

• The trial balance would now appear as follows

33
Gail DawsonTrial Balance as at 31 March 2009

• Dr Cr
• Fixed assets at cost 18,660
• Accumulated Prov. For Depreciation
• at 1 April 2008 2,800
• Stock (01/04/2008) 3,700
• Trade Debtors 1,788
• Trade Creditors 909
• Balance at bank (overdrawn) 337
• Capital 26,860
• Drawings 7,900
• Sales 25,923
• Purchases 17,967
• Running expenses 6,904
• Provision for doubtful debts 90
• 56,919 56,919

34
SUSPENSE ACCOUNTS

• Note, from this example that original profits
  calculated from the adjusted (after the initial
  corrections) trial balance would be incorrect.

35
Gail DawsonTrading, Profit and Loss AccountYear
Ended 31 March 2009

• SALES 25,923
• COST OF SALES
• Opening stock 3,700
• Purchases 17,967
• 21,667
• Closing stock 2,960 18,707
• GROSS PROFIT 7,216
• EXPENSES
• Running costs 6,904
• Net Profit 312

36
Gail DawsonTrading, Profit and Loss AccountYear
Ended 31 March 2009

• SALES 26,080
• COST OF SALES
• Opening stock 3,700
• Purchases 18,327
• 22,027
• Closing stock 2,960 19,067
• GROSS PROFIT 7,013
• EXPENSES
• Running costs 6,904
• Net Profit 109

37
SUSPENSE ACCOUNTS

• Note also, that some errors, such as (v) will not
  affect the profit and loss account, but will
  affect the balance sheet.
• Every attempt should be made to find errors. A
  suspense account should be opened only if all
  other efforts have failed, and they never should.