Errors & The Suspense Account (Cambridge (CIE) IGCSE Accounting)

Errors Which Affect The Trial Balance

Which errors affect the trial balance?

• There are some errors that are identified by the trial balance

• The most common reasons for these types of errors are:

  • Addition errors

  • Posting errors

  • Unequal posting errors

  • Partial omission errors

Which are addition errors?

• Addition errors occur when:

  • A calculation error is made when balancing an account

  • A numerical error is made when totalling the debits or credits in the trial balance

• Example

  • A business has two entries in the drawings account: $550 and $450

  • The business incorrectly totals this account as $910

Which are posting errors?

• Posting errors occur when both entries of a transaction are made on the same side of the accounts

  • Both are entered as debits or both are entered as credits

• Example

  • A business pays $500 for rent

  • The rent account is debited $500

  • The bank account is debited $500

    • This should be a credit entry

Which are unequal posting errors?

• Unequal posting errors occur when a transaction is entered into two accounts using different amounts

• Transposition errors are common examples of unequal posting

  • This is where the digits are entered in the wrong order

• Example

  • A business makes a credit sale of $52

  • $52 is entered into the sales account

  • $25 is entered into the trade receivables account

    • The digits have been switched around

Which are partial omission errors?

• Partial omission errors occur when a transaction is only entered once into the ledger accounts

  • The debit or credit entry is missing

• Example

  • A business takes $200 worth of goods for personal use

  • They debit the drawings account

  • But they forget to credit the purchases account

Suspense Account

What is a suspense account?

• A suspense account is used to correct errors when the totals in the trial balance are not equal

• It is a temporary account

  • It should be fully balanced once all the errors are corrected

How do I use a suspense account to correct errors?

• STEP 1
  Find the difference between the total debits and the total credits on the trial balance

• STEP 2
  Enter the difference into a suspense account on the side which has the lower total

  • Call the entry “Difference on trial balance”

• STEP 3
  Make entries into the ledger accounts to correct the errors

  • Label the entries as “Suspense account”

• STEP 4
  Balance these entries by making corresponding entries into the suspense account

  • These entries will be on the opposite side to the entries that corrected the error

• STEP 5
  Close the suspense account once all the errors have been corrected

  • The suspense account should automatically be balanced

    • If not, there are still errors

How do I find the difference in the totals on the trial balance?

• If you have the trial balance, simply subtract the smaller total from the larger total

• Sometimes you will not be given the trial balance

  • You could be given a list of errors and asked to find the difference in the totals on the trial balance

• Correct the errors using the suspense account

• Balance the suspense account

  • Label the balancing entry as “Difference on trial balance”

  • The side that this entry appears on is the side which had the smaller total on the trial balance