Types of error
Principle Commission Transposition Omission Compensating
TB balances TB imbalance
1 Identify original (incorrect) entry 2 Identify what entry should have been 3 Identify correcting journal and process
Identify effect of correction on profit
CONTROL ACCOUNTS, ERRORS AND OMISSIONS 6
Self-test
Answer the following questions.
1 On its receivables control account A Co has: sales CU125,000, cash received CU50,000, discounts allowed CU2,000. The balance carried down is CU95,000. What was the opening balance at the beginning of the period?
A CU22,000 debit B CU22,000 credit C CU18,000 debit D CU20,000 debit
2 A bank statement shows a balance of CU1,200 in credit. An examination of the statement shows a CU500 cheque paid in per the cash book but not yet on the bank statement and a CU1,250 cheque paid out but not yet on the statement. In addition the cash book shows the proprietor’s correct calculation of savings interest of CU50 which should have been received, but which is not on the statement. What is the balance per the cash book?
A CU1,900 overdrawn B CU500 overdrawn C CU1,900 in hand D CU500 in hand
3 Sales of CU460 have been debited to purchases, although the correct entry has been made to receivables control. The balance on the suspense account that needs to be set up is for:
A CU460 debit B CU460 credit C CU920 debit D CU920 credit
4 Sutton & Co had a difference on its trial balance. After investigation the following errors were discovered.
1 A sales invoice for CU500 was mis-read by the clerk as CU600 and entered as such into the ledger accounts.
2 Bank charges of CU145 had been debited to the cash at bank account as CU154.
How much was the original difference on the trial balance?
A Debits greater than credits by CU9 B Debits greater than credits by CU199 C Debits greater than credits by CU299 D Credits greater than debits by CU91
5 Gresham & Sons has drawn up a trial balance which shows credits greater than debits by CU250.
Which two of the following are possible explanations for this difference?
A Rent paid of CU250 had been credited to the rent account B The debit side of the trial balance had been undercast by CU250
C Cash drawings of CU125 had been debited to the cash and drawings accounts
D CU250 paid for motor repairs had been debited to the motor vehicles (non-current assets) account
E A sales invoice for CU250 had been entered twice in the sales account
6 The trial balance of Z Ltd as extracted from the books has a difference of CU812, and this has been posted to the credit of a suspense account. Some errors, as set out below, have now been discovered.
1 The year end bank overdraft of CU756 has been entered in the trial balance as a debit balance.
2 The total of discounts receivable for the last month of the year of CU13,400 has been posted to the discounts receivable account as CU14,300.
3 A purchase invoice totalling CU2,015 has been correctly credited to the control account, but this amount has been debited to light and heat.
After correction of these errors, what is the remaining balance brought down on the suspense account?
A CU1,815 DR B CU200 CR C CU956 CR D CU1,424 CR
7 On reconciling the purchases control account with the list of purchases ledger balances, the accountant of Moore discovered that there were two reconciling items.
1 A purchase invoice from Polly totalling CU158 had been entered on her account as CU258, but was correctly entered in the purchases day book.
2 The purchases day book had been undercast by CU100.
To complete the reconciliation, which of the following should happen?
CU CU
A DR Purchases 200
CR Purchases control account 200
B DR Purchases control account 100
CR Purchases 100
and reduce the amount shown as owed to Polly and the list of balances by CU100
C DR Purchases control account 200
CR Purchases 200
and reduce the amount shown as owed to Polly and the list of balances by CU100
D DR Purchases 100
CR Purchases control account 100
and reduce the amount shown as owed to Polly and the list of balances by CU100 8 Due to a fault in the company’s computer software East Cowes Ltd’s purchases day book was
undercast by CU8,800, and its sales day book was undercast by CU3,800. In addition, debit balances of CU580 had been omitted from the list of sales ledger balances, credit balances of CU280 omitted from the list of purchases ledger balances, and contras of CU750 had not been entered anywhere in the books. After the correction of these errors East Cowes Ltd’s profit will
A Decrease by CU5,000 B Decrease by CU4,700 C Decrease by CU3,400 D Increase by CU5,000
CONTROL ACCOUNTS, ERRORS AND OMISSIONS 6
9 On 31 January 20X8 Randall's cash book for its current account showed a credit balance of CU150 which did not agree with the bank statement balance. In performing the reconciliation the following points come to light.
CU Not recorded in the cash book
Bank charges 36
Transfer from savings account to current account 500
Not recorded on the bank statement
Unpresented cheques 116
Uncleared lodgements 630
It was also discovered that the bank had debited Randall's account with a cheque for CU400 in error.
This should have been debited to Hopkirk’s account.
What was the original balance on the bank statement?
10 A bank reconciliation statement for Worth Ltd at 31 December 20Y1 is in course of preparation. In the light of the information given below, compute the final balance shown by the cash book.
1 Overdrawn balance per bank statement is CU1,019.
2 An amount of CU250 credited in the bank statement under a standing order arrangement has not been entered in the cash book.
3 Cheques drawn and entered but not presented total CU2,467.
4 Bank charges of CU1,875 debited by the bank have not been entered in the cash book.
5 Cash and cheques received and entered but not credited in the bank statement total CU4,986.
6 An uncorrected bank error has resulted in a cheque for CU397 debited to Worth’s account instead of to the account of the drawer.
The final balance shown by the cash book, after making all necessary corrections, should be A CU6,831 DR
B CU3,141 DR C CU1,897 DR D CU228 DR
Now, go back to the Learning Objectives in the Introduction. If you are satisfied that you have achieved these objectives, please tick them off.
Answers to Self-test
1 A RECEIVABLES CONTROL
CU CU
Bal b/f (bal figure) 22,000 Cash 50,000
Sales 125,000 Discounts allowed 2,000
Bal c/f 95,000
147,000 147,000
If you had answer B, you reversed the double entry and so produced a payables control account. In answer D, you omitted the discounts allowed figure; while in answer C you put discounts allowed on the debit instead of the credit side of the control account.
2 D
CU CU
Balance per bank statement 1,200
Add outstanding lodgements 500
deposit interest not yet credited 50 550
1,750
Less unpresented cheques (1,250)
Balance per cash book 500
3 D Sales of CU460 have been debited to accounts receivable and also CU460 has been debited to purchases. Therefore the trial balance needs a credit of 2 CU460 = CU920 to balance.
4 C 1 This error will not lead to a difference in the trial balance. Both receivables and sales will be overstated.
2 The cash at the bank account has been debited (it should have been credited) with CU154, bank charges debited with CU145 therefore CU299 more debits than credits.
5 B and E
Should have Have Result
A DR Rent CU250 CR Bank CU250
CR Rent CU250
CR Bank CU250 CU500 more CRs than DRs
B – – CU250 more CRs than DRs
C DR Drawings CU125 CR Bank CU125
DR Bank CU125
DR Drawings CU125 CU250 more DRs than CRs D DR Repairs CU250
CR Bank CU250
DR Non-current assets CU250 CR Bank CU250
DRs = CRs (even though entry is wrong in principle)
E DR Receivables CU250 CR Sales CU250
DR Receivables CU250
CR Sales CU500 CU250 more CRs than DRs
6 B SUSPENSE
CU CU
Bank overdraft (2 756) 1,512 Opening balance 812
CONTROL ACCOUNTS, ERRORS AND OMISSIONS 6
7 D 1 As purchases day book entry is correct, subsequent double entry is correct. Personal account is incorrect.
2 Double entry incorrect.
8 A
Bookkeeping Effect on profit
CU
Undercast of purchase day book DR Purchases – 8,800
CR Purchase ledger control account Undercast of sales day book DR Sales ledger control account
CR Sales + 3,800
– 5,000 Contras will not affect the profit for the year, whilst errors in the sales and purchase ledgers, not being part of the double entry system, cannot do so.
9
CASH AT BANK ACCOUNT
CU CU
Balance b/d 150
Transfer from savings a/c 500 Charges 36
Balance c/d 314
500 500
CU
Balance per cash book 314
Add unpresented cheques 116
Less uncleared lodgements (630)
Less error by bank* (400)
Balance per bank statement (600)
* On the bank statement a debit is a payment out of the account.
10 C CU
Balance per bank statement (1,019) o/d
Cheques not presented (2,467)
(3,486)
Amount not credited 4,986
1,500
Bank error 397
Debit balance per cash book 1,897
Answers to Interactive questions
Answer to Interactive question 1
PAYABLES CONTROL ACCOUNT
CU CU
Bank payments 79,500 Balance b/d (balancing figure) 16,970
Discount received 3,750 Purchases 83,200
Contra with receivables 4,000
Balance c/d 12,920
100,170 100,170
Answer to Interactive question 2
A The total of sales invoices in the day book is debited to the control account. If the total is understated by CU800, the debits in the control account will also be understated by CU800. Options B and D would have the opposite effect: credit entries in the control account would be understated. Option C would lead to a discrepancy of 2 CU800 = CU1,600.
Answer to Interactive question 3
(a) RECEIVABLES CONTROL ACCOUNT
20X8 CU 20X9 CU
Oct 1 Balances b/d (8,024 – 57) 7,967 Sept 30 Cash received from
20X9 credit customers 55,212
Sept 30 Sales 62,514 Discount allowed 2,328
Irrecoverable debts 326
written off
Contra 434
Balance c/d 12,181
70,481 70,481
(b) PAYABLES CONTROL ACCOUNT
20X8 CU 20X8 CU
Sept 30 Cash paid to credit Oct 1 Balance b/d (6,235 – 105) 6,130
suppliers 37,307 20X9
Discount received 1,475 Sept 30 Purchases 39,439
Contra 434 Cash refund 105
Balance c/d 6,458
45,674 45,674
CONTROL ACCOUNTS, ERRORS AND OMISSIONS 6
Answer to Interactive question 4
(a) RECEIVABLES CONTROL ACCOUNT
CU CU
Uncorrected balance b/d 12,550 Discount omitted (d) 100
Sales omitted (a) 850 Contra entry omitted (f) 400
Bank: cheque dishonoured (l) 300 Irrecoverable debt omitted (g) 500
Credit note omitted (j) 200
Amended balance c/d 12,500
13,700 13,700
Balance b/d 12,500
Note: Items (b), (c), (e), (h), (i) and (k) are matters affecting the personal accounts of customers. They have no effect on the control account.
(b) STATEMENT OF ADJUSTMENTS TO LIST OF PERSONAL ACCOUNT BALANCES
CU CU
Original total of list of balances 12,802
Add: debit balance omitted (b) 300
debit balance undercast (e) 200
500 13,302 Less: transposition error (c): understatement of cash received 180
cash debited instead of credited (2 × CU250) (h) 500
discounts received wrongly debited to Bell (i) 50
understatement of cash received (k) 72
(802)
Corrected total on list of balances 12,500
Answer to Interactive question 5
A Decrease
B No effect. Adjustment to cash book.
C Decrease
Balance per bank statement 388
Unpresented cheques (5,629)
Uncleared lodgements 5,577
Bank error (110)
Balance per cash account 226
Answer to Interactive question 6
CU CU
Balance per cash book (610)
Items on statement, not in cash book
Direct debits (715)
Investment income 353
(362)
Corrected balance per cash book (972)
Item in cash book not on statement:
Customer's cheque (uncleared lodgements) (875)
Balance per bank statement (1,847)
Answer to Interactive question 7
(a) DEBIT Purchases CU250
CREDIT Trade payables CU250
A transaction previously omitted
(b) DEBIT Repairs account CU150
CREDIT Non-current asset (machinery) a/c CU150
The correction of an error of principle: repairs costs incorrectly added to non-current asset costs
(c) DEBIT Drawings CU280
CREDIT Sales CU280
An error of principle, in which sales were reduced to compensate for cash drawings not accounted for
(d) DEBIT Telephone expense CU540
CREDIT Electricity expense CU540
Correction of an error of commission: telephone expenses wrongly charged to the electricity account
(e) DEBIT Trade receivables CU400
CREDIT Sales CU400
The correction of a casting error in the sales day book (CU28,825 – CU28,425 = CU400)