What is a suspense account? When is it opened? How do you rectify the errors when a suspense account has already been opened
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What is a suspense account? When is it opened? How do you rectify the errors when a suspense account has already been opened
Suspense Account- This is a general ledger account which functions as a holding account until there is some error. There are different types of error which are as follows:
1. Omission - When there is no transaction recorded
2. The error of commission – When the entry of an item is done on the correct side but in the wrong account.
3. The error of principle –When the entry of an item is done on the correct side of the wrong account, and the cash is paid for plant repairs is debited from the plant account
4. The error of original entry – As the name indicates, a wrong entry is done in the records and then it is entered in the correct account.
5. Reversal of entries –When all the entries and account is right, but the account that should be debited is credited.
6. Addition errors –Incorrectly added figures
7. Posting error- An entry is made in the records but is not posted at all, or the entry is made in one record and is posted incorrectly in another record.
8. Trial balance errors – When a balance is omitted or is incorrectly extracted.
9 Compensating errors – two equal and opposite errors leave the trial balance balancing. This kind of errors are usually deliberate and are done to balance the records. These are done to hide the fraud.
How to correct these errors- 1-5 errors are corrected by journal entry between ledger accounts that are affected.
6-9 errors should be corrected, but on one side the suspense accounts need to be opened for the difference in the records.
Error 8- the trial balance is simply amended.