Question

Explain the role of suspense account in rectifying one sided errors with suitable examples

Answer 1

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Here's the answer ⤵

Suspense Account is opened to tally the Trial Balance, when accounting errors cause disagreement of Trial Balance. The mistake may be rectified after the preparation of final accounts. In such a case Suspense Account is carried forward to the next accounting year.

If the errors affect the nominal accounts, then the profit will be increased or decreased. This is because all nominal accounts are transferred to Trading and Profit and Loss Account. The profit is increased or decreased on account of errors in nominal accounts.

However, Balance sheet will also be affected by the errors of nominal accounts, because the profit is finally transferred to Capital Account, which appears in Balance Sheet. If errors lie in personal and real accounts, then Balance Sheet is affected and the profit or loss.

After the preparation of accounts, normal accounts should not be rectified through the concerned nominal accounts. Therefore, it is necessary to rectify the errors of the preceding year in such a way that the trading result of the succeeding year in which the errors are rectified, is not affected. Accordingly, rectification of amounts relating to nominal accounts is to be done through special accounts styled “Profit and Loss Adjustment Account”. After the rectification of errors, the balance in the Profit & Loss Adjust Account is transferred to Capital Account.

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