Disposal of Suspense Account

9:15 PM imran ali

There will be no balance left in suspense account if all the errors are located and rectified. Sometime, all the errors may not be rectified then, there will be still some balance in the suspense account which should be transferred to the balance sheet i.e. debit balance in asset side whereas credit balance in the liability side of balance sheet.


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Suspense Account

8:53 PM imran ali

Sometimes, trial balance does not agree due to some errors which have not been found yet. At the same time, if we are required to prepare final acounts as soon as possible, the trial balance is rectified temporally by writing amount in lighter side under the name of 'Suspense Account'. If the credit side is short, the suspense account will be credited and if the credit side is bigger, this account will be debited. The amount standing to the debit or credit of suspense account represents the net effect of one sided error.


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One sided error

8:48 PM imran ali

When one sided errors are located after the preparation of trial balance, they are rectified by passing journal entries. One account either debited or credited and another is suspense account either in debit or credit side. Suspense account is used to rectify only these errors which affect the trial balance. If the rectified account is debited in the entry suspense account will be credited to complete the double entry and vice versa.


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Rectification of Errors

8:35 PM imran ali

As error is a mistake and rectification denotes act of correcting the errors that have already committed in the books of accounts. In other words, rectification of error is a complex job of removing the effect of an error by replacing with correct situation which requires a sound knowledge of the fundamental principles of book-keeping and accounting. Whenever an error is found, it must be rectified because if the errors are not rectified, the profit, the profit or loss and financial position shown by final account will not be accurate.

Methods of Rectifying Errors:
Rectification of errors in the books of account by rubbing or cutting or tearing or putting ink or t-pex etc, reduces the authenticity of accounting records. They may be not be valid too. So, the appropriate methods rectifying errors must be applied. Generally errors are rectified by the following ways:
  1. If an error is located in the subsidiary books before posting in ledgers wrong figure should be truck off and correct figure should be written above the wrong figure by drawing a straight line over the wrong figure.
  2. If a wrong figure has been posted in ledger account, it also may be rectified by neatly crossing out the wrong figure by a single line and writing correct figure above the crossed figure.
  3. If the errors are located after a long time (after closing of books of accounts), it must be rectified by passing journal entries.


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Errors not Disclosed by a Trial Balance

7:24 PM imran ali

It is important to note that the agreement of a trial balance does not prove that all the books of accounts are free of accounting errors in all cases. There may be some errors ever though two sides of a trial balance will agree. It means some errors as given are not disclosed by the trail balance.
  1. Errors of omission: When two aspects debit or credit of a transaction are omitted to record in journal, then they are also not posted to ledger and trial balance. A trial balance is effected by the equal amount.
  2. Errors of commission: When a transaction has been recorded but has been wrongly entered in the books of original entry or posted in the ledger, then it is called an error of commission. Such errors are the result of carelessness of accountants. Errors of commission committed by posting wrong amount of wrong side by totaling or balancing wrong amount in subsidiary books of ledger accounts by making wrong entry in journal or ledger etc. Example, if goods purchased $2010 from John is entered in purchase account as $1020 again John account will be credited by same amount. Both sides have been effected by equal amount so the trial balance shall agree.
  3. Compensating errors: When an error committed previously has been neutralized by another error committed later on, such error is called compensating error. This type of error does not affect the trial balance.
  4. Errors of principles: An error of principle is an error which violets the fundamentals of book-keeping. In other words, such errors are committed when fundamental principles of book-keeping and accountancy are not followed by the accounting staff wrong allocation of expenditure between capital and revenue excess or inadequate provision for depreciation, over or under valuation of stock, furniture purchases is recorded in purchase account etc. are errors of principles.


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