Corrections Of Errors
Overview
Discovering an error is only half the job. The harder, more examinable skill is putting it right with proper double entry, so that the records end up exactly as they should have been all along. Every correction is made through the journal first, then posted to the ledger, and the journal entry must itself balance. Some errors leave the trial balance agreeing and are corrected with a simple two-account journal. Others throw the trial balance out, and these are corrected with the help of a temporary suspense account.
In this lesson you will learn to write journal entries that correct errors cleanly, to open and clear a suspense account, and to trace the knock-on effects of a correction on the reported profit and on the statement of financial position. This is one of the most rewarding topics in the course: master the logic and a whole family of exam questions becomes routine.
Objectives
- how to correct errors using journal entries.
- the use of a suspense account as a temporary measure to balance the trial balance.
- how to correct errors using a suspense account.
- how to adjust a profit or loss for an accounting period after the correction of errors.
- the effect of correction of errors on a statement of financial position.
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Lesson Evaluation
Congratulations on completing the lesson on Corrections Of Errors. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- Where is an error always corrected first? A. The ledger B. The journal C. The trial balance D. The cash book Answer: B
- A suspense account is opened to: A. Record cash sales B. Make the totals of a trial balance agree temporarily C. Replace the capital account D. List drawings Answer: B
- Cash drawings of $40 were debited to cash and credited to drawings. The correcting journal needs each entry to be: A. $20 B. $40 C. $80 D. $160 Answer: C
- Which error requires an entry in the suspense account when corrected? A. A purchase completely omitted B. Rent debited to the premises account C. The sales account under-cast by $100 D. Cash from one customer credited to another customer Answer: C
- Purchases were over-cast by $90. The effect on draft profit, before correction, was that profit was: A. Overstated by $90 B. Understated by $90 C. Unaffected D. Overstated by $180 Answer: B
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