Answer to Question #31322 in Finance for Vipul

Question

An accountant finds that the trial balance of his client did not tally and it showed an excess credit of Rs. 69.74. He transferred it to a suspense account and later discovered the following errors.
a) Rs. 44.37 paid to Anand has been credited to his account as Rs. 34.37.
b) A purchase of Rs. 145.50 has been posted as Rs. 154.50 to the purchases account.
c) An expenditure of Rs. 158 on repairs has been debited to the buildings account.
d) Rs. 80 was allowed by B as discount which has not been entered in the books.
e) A sum of Rs. 125.05 realized on the sale of old furniture has been posted to the sales account. Give journal entries to rectify the errors and show the suspense account as it would appear after adjustments Hint: Total of suspense a/c = 78.74

Answer 1

When an error is discovered in the accounting records, it should be corrected immediately to prevent wrong data which will result to unreliable financial statements. This is done through a correcting entry.
A correcting entry is a journal entry whose purpose is to rectify the effect of an incorrect entry previously made.
The correcting entries will be:
a) Accounts Payable 10
Cash 10
b) Accounts Payable 9
c) Buildings 158
Repairs 158
d) Accounts Payable & 80
Purchases 80
e) Sales 125.05 &
f)& Cash & 125.05
Total of suspense a/c = 78.74