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:

Many Errors are found  i.e to be shown in the question

To find:

a. Rectifying the journal entries

b. Suspense account

c. Effect of rectifying errors on the profits  Explain ?

Solution:

According to the given data, the journal entries are given 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)

c) Sale A/c Dr Rs 1,500

       To Machinery A/c  Rs 1,500

(Being sale of machinery wrongly passed to sale book)

d) Purchase A/c Dr Rs 600

         To Kamesh A/c  Rs 600

(Being Purchase to Kamesh not recorded)

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 would shows the decrement in profits or increase losses, as income is not credited for profit and loss accounting. The effect on profit and loss should be offset when the error is correct as extra revenue will be added to the profit and loss account to increase the income or reduce the losses.

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What is Errors of principle in Accounts ​

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