Page 190 - DCOM101_FINANCIAL_ACCOUNTING_I

Financial Accounting-I

Notes

Cash received from Ashok ` 2500 were posted to his account as ` 5200. Accountant
erased amount of ` 5200 and wrote ` 2500 in its place. Is he justifi ed in
doing so?

14.3 Rectification of Errors through Suspense A/C
You have learnt that the Trial Balance prepared at the end of a period by the business concern
must agree. It means the sum of its debit column and sum of credit column should agree. But if
the totals do not agree the difference amount is written in a new account. This account is called
Suspense Account. If the total of the debit side of the Trial Balance is more than the total of its
credit side, the difference amount will be written in Suspense A/c on its credit side i.e. Suspense
A/c is credited and vice-versa. You have also learnt that the two sides of the Trial Balance do
not agree because there is some error or errors in the accounts, which is reflected in the Suspense

Account. Thus, Suspense A/c is a summarised account of errors.
Opening of a Suspense Account is a temporary arrangement. As soon as the error that has led

to Suspense Account is rectified, this account will disappear. One point needs to be noted that
Suspense A/c is the result of one sided errors. So one sided errors are corrected through Suspense
A/c. completing the double entry when an error is corrected by placing the correct amount on
the debit of the proper account, the credit is placed in Suspense Account or vice-a-versa.

Example: Gopal’s Account was debited short by `100. The error will be rectifi ed through
Suspense A/c by debiting Gopal A/c and crediting Suspense A/c by `100.
Journal entry for the same is as follows:

Gopal Dr. 100
To Suspense A/c 100
(Gopal’s A/c debited short is now corrected)
Similarly, while correcting as one sided error the proper account is credited with the correct
amount, the debit is placed in the Suspense A/c. For example, Sales Book for December, 2006

is undercast by ` 500. The error will be rectified by debiting Suspense A/c and crediting
Sales A/c.
Journal Entry for the same will be as follows:

Suspense A/c Dr 500
To Sales A/c 500
(Sales Book undercast is rectifi ed)
Illustration 3: On 31st Dec, 2006 the Trial balance of Sunil & Co balanced after inserting a suspense
account in the nominal ledger. In the course of audit, the following facts were discovered:

(a) ` 120 received from A had been posted to B’s account in the sales ledger.
(b) ` 50 paid for postage stamps had been entered correctly in the cash book, but not posted.
(c) In casting the Sales Day Book ` 878 were carried forward as ` 787.
(d) An Invoice of ` 960 in respect of Motor Car debited to Motor Car a/c included the cost of
licence ` 60.

(e) ` 540 credited to Partners’ current Account for interest on capital had been debited to Bank
Interest account.

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