Question

The Trial Balance prepared by Dhanraj did not tally and the difference was transferred to Suspense Account. Subsequently, the following errors were found. Rectify the errors and show the suspense Account. Also explain the effect of rectifying errors on the profits.
a) A sale of Rs. 1600 to Kamalnath was posted to Karunanath. b) Insurance paid amounting to Rs 250 was posted twice. c) A sale of Rs 1500 for old machinery was passed through the sale book. d) A purchase of Rs. 600 from Kamesh was not passed through the books. e) Rs. 80, the debit balance on commission account was omitted from the trial balance. f) The purchase returns book was undercast by Rs 700.​

Answer 1

Given:

Errors are found

To find:

a. Rectifying the journal entries

b. Suspense account

c. Effect of rectifying errors on the profits

Solution:

As per the data, the journal entries are shown below:

a) Kamalnath A/c Dr Rs 1,600

         To Karunanath A/c  Rs 1,600

(Being sale to kamalnath was rectified wrongly posted to karunanath)

b) Suspense A/c  Rs 250

        To Insurance A/c  Rs 250

(Being Insurance paid posted twice now)

c) Sale A/c Dr Rs 1,500

       To Machinery A/c  Rs 1,500

(Being sale of machinery wrongly tried to sale book)

d) Purchase A/c Dr Rs 600

         To Kamesh A/c  Rs 600

(Being Purchase to Kamesh not passed)

e) Commission A/c Dr Rs 80

          To Suspense A/c Rs 80

(Being Commission was not taken into trial balance)

f) Suspense A/c Dr Rs 700

Purchase return A/c Rs 700

(Being the purchase return undercast rectified)

The preparation of the suspense account is presented below:

                                       Suspense Account

To Insurance Rs 250                 By Commission Rs 80

To Purchase returns Rs 700     By Balance C/d  Rs 830

This error will reduce profits or raise losses as income is not credited to account for profit and losses. When the error is corrected, the impact on profit and loss will be reversed as additional revenue will be added to the profit and loss account in order to increase the income or minimize the losses

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