Chapter9

CorrectingAccountingErrorsTopicsCovered9.1AccountingErrors9.2TrialBalanceBalances 9.3TrialBalanceDoesNotBalance 9.4StepstoCorrectAccountingErrors 9.5SuspenseAccount9.1AccountingErrorsItwasverytimeconsumingfortheaccountanttopickuponandtracetheoriginsofanyerrors,especiallywhentheerrorsweresmall.Togettothebottomofanyaccountingerror,lookatthetrialbalance.9.2TrialBalanceBalances9.2.1ErrorofPrincipleThismeanseitherthedebitorcreditsidegoesintothewrongFinancialStatementsbutthesideitselfiscorrect.Example：Abusinessmadea$100cashsaletoacustomer.Thebusinessshouldshow:DrCash $100CrSalesrevenue $100Butthebusinesshasmadethefollowingwrongentry:DrPurchases $100CrSalesrevenue $100Thetrialbalancestillbalancesinthiscase:ElementsDrCrCash0

SalesRevenue

$100Purchases$50+$100=$150

TradePayables

$50

$150$1509.2.2ReversalErrorThismeansthedebitandcreditsidesofthetransactionhavebeenreversedorswapped,andthetrialbalancestillbalances.Abusinesshasmadea$100cashsale:DrCash $100CrSalesrevenue $100However,thebusinesshasmadethefollowingwrongentry:DrSalesrevenue $100CrCash $100Thedebitandcreditsidesoftheentryarereversed,butthetrialbalancestillbalances:ElementsDrCrCash

$100SalesRevenue$100

Purchases$50

TradePayables

$50

$150$1509.2.3OmissionoftheEntireTransactionThisiswhenboththedebitandcreditsidesofthetransactionaremissing.Example:thebusinesshasmade$100cashsaletothecustomer:DrCash $100CrSalesrevenue $100Theentiretransactionismissing.Sothetrialbalanceis:ElementsDrCrCash0

SalesRevenue

0Purchases$50

TradePayables

$50

$50$509.2.4CommissionErrorAbusinesshaspurchasedthegoodsoncreditworth$50.DrPurchases $50CrTradepayables $50However,thebusinesshasmadethefollowingwrongentry:DrPurchases $50CrCapital $50Theeffectonthetrialbalance：ElementsDrCrCash$100

SalesRevenue

$100Purchases$50

TradePayables

0Capital

$50

$150$1509.2.5CompensatingErrorTwobusinesstransactions：1.thebusinesshasmadea$100cashsaletothecustomer.2.thebusinesspurchased$50worthofgoodsoncredit.Firstentry:DrCash $100CrSalesrevenue $100Secondentry:DrPurchases $50CrTradepayables $50However,thebusinesshasmadethefollowingwrongentries:Firstentry:DrCash $50CrSalesrevenue $100Secondentry:DrPurchases $100CrTradepayables $50Theeffectsonthetrialbalancebelow:ElementsDrCrCash$50

SalesRevenue

$100Purchases$100

TradePayables

$50

$150$1509.2.6ErrorofOriginalEntryAbusinesshasmade$100cashsaletothecustomer.DrCash $100CrSalesrevenue $100However,theaccountanthasinputhas$5insteadof$100:DrCash $5CrSalesrevenue $5ElementsDrCrCash$5

SalesRevenue

$5Purchases$50

TradePayables

$50

$55$559.2.7DuplicationofEntriesAbusinesshasmade$100cashsaletothecustomer:DrCash $100CrSalesrevenue $100However,thebusinesshasmadetheaboveentryagain:DrCash $100x2=$200CrSalesrevenue $100x2=$200ElementsDrCrCash

$100x2=$200SalesRevenue$100x2=$200

Purchases$50

TradePayables

$50

$250$250Errorsoccurredwherethetrialbalancedidnotbalanceandasuspenseaccountwasneeded:1.Castingerror2.One-sidedpostingerror3.Omissionofasingleentry4.Transpositionerror9.3TrialBalanceDoesNotBalance9.3.1CastingErrorThismeansthateitherthetotaldebitorcreditsidehasbeencalculatedwrongly.Example：9.3.2One-sidedPostingErrorAbusinesshasmadea$50creditpurchase:DrPurchases $50CrTradepayables $50However,thebusinesshasmadethefollowingwrongentry:DrPurchases $50DrTradepayables $50ElementsDrCrCash$100

SalesRevenue

$100Purchases$50

TradePayables$50

$200$1009.3.3OmissionofaSingleEntryEitherthedebitorcreditsideofthetransactionismissing.Forexample,insteadof:DrPurchases $50CrTradepayables $50Thebusinesshasonlymadethefollowingentry:DrPurchases $50ElementsDrCrCash$100

SalesRevenue

$100Purchases$50

TradePayables

0

$150$1009.3.4TranspositionError

Abusinesshasmadeacreditsaleof$110tothecustomer:DrCash $110CrSalesrevenue $110However,thebusinesshasmadethefollowingentry:DrCash $101CrSalesrevenue $110ElementsDrCrCash$101

SalesRevenue

$110Purchases$50

TradePayables

$50

$151$1609.4StepstoCorrectAccountingErrorsThree-stepapproachtocorrectaccountingerrors:Step1:Whatshouldbethecorrectaccountingentry?Step2:Whatwasthewrongaccountingentry?Step3:Correctit.Example：ThebusinessownerTonyhaswithdrawn$1,000cashforpersonalexpenses.However,theaccountanthasmadethefollowingdoubleentry:DrTradepayables $1,000CrCash $1,000Step1:Whatshouldbethecorrectaccountingentry?DrDrawings $1,000CrCash $1,000Step2:Whatwasthewrongaccountingentry?DrTradepayables $1,000CrCash $1,000Step3:Correctit.DrDrawings $1,000CrTradepayables $1,0009.5SuspenseAccountAccountantscouldusea“suspenseaccount”totemporarilyforcethetrialbalancebalancing.ElementsDrCrCash$101

SalesRevenue

$110Purchases$50

TradePayables

$50SuspenseAccount$9

$160$160Andthe“temporary”FinancialStatemen