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CORRECTION OF ERRORS & SUSPENSE ACCOUNT

1 Which adjustment will result in an increase in a company’s stated profit?

A the amortisation of goodwill

B the application of reserves for the issue of bonus shares
C the capitalisation of development costs
D the upward revaluation of non-current assets

2 A trial balance fails to agree. The debits exceed the credits. What single error in the
nominal ledger would cause the difference?

A a contra between the trade receivables and trade payables ledgers has been
entered on the credit side of both control accounts
B a rental receipt has been entered twice in the rent receivable account

C the closing inventory for the previous period has not been entered in the
inventory account

D the opening electricity accrual has been brought forward on the wrong side of
the ledger account.

3 Sales returns of $400 have been credited to the trade receivable’s account as $40. A
suspense account is created to complete the trial balance. What is the balance on the
suspense account?

A $40 debit
B $40 credit
C $360 debit
D $360 credit

4 The directors of a company are finishing the accounts for the year ended 30 June 2023.
They discover that the inventory at 1 July 2022 was over-valued by $50 000.

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What is the effect of correcting this error in the accounts?

Net profit for the year-end 30 June 2023 Reserves at 1 July 2022
A Decrease Decrease
B Decrease Increase
C Increase Decrease
D Increase Increase

5 A company’s trial balance shows debit balances in excess of credit balances by $1 000.
What could explain this?

A cash overstated by $540

omission of the telephone account totalling $460
B trade payables control account overstated by $450
trade receivables control account understated by $550
C omission of accumulated depreciation of $500
sales understated by $500
D purchases understated by $500 in the nominal ledger
Omission of sales invoices totalling $500

6 When preparing the final accounts for the year; the following errors were discovered.

(i) Sales day book was understated by $300.

(ii) No provision had been made for accrued overtime costs, $200.
(iii) No account had been taken of prepaid rent, $400.
The draft net profit is $ 8 050.
What will be the net profit when errors are corrected?

A $ 8 150
B $8 550
C $8 750
D $8 950

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7 An electricity accrual of $375 was treated as a prepayment in preparing a trader’s

statement of profit or loss. What was the effect on profit?

A overstated by $375
B overstated by $750
C understated by $375
D overstated by $750

8 Motor vehicles purchased for $530 000 at the start of the year have been incorrectly
depreciated for the whole year using the straight line method at 10% instead of 25%.
Ledger balances after the entries have been posted:

$
Motor vehicles 530 000
Provision for depreciation 53 000

Which entries will correct the error?

Debit Credit
A Income statement $79 500 Provision for depreciation $79 500
B Income statement $132 500 Provision for depreciation $132 500
C Provision for depreciation $79 500 Income statement $79 500
D Provision for depreciation $132 500 Income statement $132 500

9 Which of the following would prevent a trial balance from balancing?

A a credit note from a supplier entered in the sales ledger

B a discount allowed posted to the discount received account
C an invoice entered twice in the sales journal
D a refund to a customer wrongly posted to discounts allowed account

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10 After draft accounts had been prepared, the following errors were discovered.

(i) Opening inventory was overvalued by $2 000.

(ii) Closing inventory was undervalued by $3 000.

If the original gross profit was $90 000, what was the gross profit after errors were
corrected?

A $85 000
B $89 000
C $91 000
D $95 000

11 Danda Ltd’s final accounts showed a net profit of $46 800. It was discovered that the
opening inventory had been overcast by $4 620 and the closing inventory had been
undercast by $2 760.

What is the effect on the net profit of correcting the errors?

A net profit decreases by $1 860

B net profit increases by $1 860
C net profit decreases by $7 380
D net profit increases by $7 380

12 A trial balance failed to agree by $4 200. Which of the following could account for this
discrepancy?

A A cheque for $4 200 from Chitimbire was posted to Chitemere’s account in the
sales ledger.

B An amount of $4 200 paid to Chitima was credited to his Purchases Ledger

account.

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C A petty cash withdrawal of $2 100 was debited to Miscellaneous Expenses

Account.
D An asset purchase of $2 100 was credited to the Purchases Account.

13 In the books of a trader, discount allowed of $130 000 have been credited in discounts
received account and discounts received of $90 000 have been debited in the discounts
allowed accounts.

What are the correcting entries?

Account to be debited Account to be credited

A Discounts allowed $40 000 Discounts received $40 000

B Discounts allowed $40 000 Suspense $80 000
Discounts received $40 000
C Discounts received $40 000 Discounts allowed $40 000
D Suspense $80 000 Discounts allowed $40 000
Discounts received $40 000

14 Discount allowed of $50 has been credited to discount received account and returns
outwards of $200 have been debited to trade payables account as $20. A suspense
account is opened to complete the trial balance.

What is the balance on the suspense account?

A $120 credit
B $20 debit
C $280 credit
D $280 debit

15 Jangano received a cheque for $600 from B. Mukoto which was credited to B. Makoto’s
account. This is

A a compensating error.

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B an error of commission.
C an error of complete reversal of entries.
D an error of principle.

16 If accrued insurance of $300 is incorrectly treated as prepaid insurance, the profit will
be

A overstated by $300.
B overstated by $600.
C understated by $300.
D understated by $600.

17 The difference on the trial balance is entered in a suspense account. It is discovered that
a discount received has been debited to the discount allowed account.

Which journal entry corrects the error?

Account to be debited Account to be credited

A Discounts received Suspense

B Suspense Discount allowed
C Discount allowed Suspense
Discount received
D Suspense Discount allowed
Discount received

18 Which of the following will increase profit?

A increasing depreciation rates

B increasing distributable reserves
C increasing the provision for doubtful debts
D increasing the value of closing work in progress

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19 The final accounts of KayZig contain two errors. The closing inventory in trade has
been overvalued by $6 000 and an uninsured theft of inventory costing $9 000 has not
been taken into account. What effects will correction of these errors have on KayZig
acconts?

Gross profit Net profit

A Reduced by $6 000 increased by $3 000

B Reduced by $3 000 reduced by $3 000
C Increased by $3 000 reduced by $6 000
D Increased by $6 000 increased by $6 000

20 The draft accounts of a business show a net profit of $64 000 before taking account of
the following

(i) The reduction of the provision of doubtful debts by $300.

(ii) The purchase of office stationery costing $2 400 which has not been entered in
the records; only one sixth of this stationery was used by the year-end.

What is the corrected net profit?

A $64 300
B $64 100
C $63 900
D $61 900

21 The cost of a new machine has been debited to the repairs account. What error is this
an example of?

A commission
B omission
C principle
D reversal entries

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22 The difference on a trial balance has been entered in a suspense account. A receipt of
$5 000 from trade receivable has been debited to the bank account and credited to the
sales account.

Which journal entry is necessary to correct the error?

Account to be debited Account to be credited

A sales $5 000 suspense $5 000

B sales $5 000 trade receivables $5 000
C suspense $10 000 bank $10 000
D suspense $5 000 bank $5 000

23 The trial balance has been prepared. It does not balance so a suspense account is opened.
Later several errors were found. One involves the rent payable account when $234 paid
in advance from the previous year has been brought forward at the start of the current
year on the wrong side of the account and as $324.

Which journal entry will correct the situation?

Account to be debited Account to be credited

A rent payable $90 suspense $90

B suspense $90 rent payable $90
C suspense $558 rent payable $558
D rent payable $558 suspense $558

24 A transport business owned by a sole proprietor purchases a motor vehicle. This is

charged to the motor running costs account.

What are the effects of this on the end of year statement of financial position?

A non-current assets understated current assets understated

B non-current assets overstated current assets overstated
C non-current assets overstated capital account overstated
D non-current assets understated capital account understated

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25 A trial balance does not balance and suspense account is opened. Subsequently the
following errors were found and the suspense account is cleared.

(i) A sales invoice for $1 240 had been omitted from the books.
(ii) Rent paid of $2 600 was entered correctly in the cash book but incorrectly as
$6 200 in the rent account.
(iii) The purchases journal was undercast by $1 980.

What was the original balance on the suspense account?

A $1 620 credit
B $4 340 debit
C $5 580 credit
D $5 580 debit

26 A trial balance does not balance. The difference has been entered in the suspense
account. The following errors are found.

(i) The purchase ledger control account balance of $48 300 has been included as a
debit balance.
(ii) Provision for depreciation has been overcast by $960.
(iii) A cash payment of $630 for rent has been credited in the cash book and debited
to bad debts account.

What is the correcting debit entry to the suspense account?

A $47 340
B $95 010
C $95 640
D $97 560

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27 On 1 January 2022, a business had prepaid rent of $50. During 2022, it made three rent
payments of $250 each. On 31 December 2022, the business owed $200 rent for 2022.
The business owner only charged the rent payments made during 2022 in the income
statement. What is the effect on profit for the year?

A $200 overstated
B $200 understated
C $250 overstated
D $250 understated

28 Dora’s trial balance did not agree and she placed the difference in a suspense account.
The following shows how four errors have been corrected using suspense account.

Suspense account
$ $
Difference in trial balance 200 Discount received 310
Discount allowed 160 Sundry expenses 390
Cash 340
700 700

The profit for the year before the errors were corrected was $35 400. What is the correct
profit for the year?

A $34 520
B $34 540
C $34 860
D $35 480

29 Which error would result in the creation of a suspense account?

A crediting the commission received account with rent received
B crediting the discounts allowed account with the discounts received
C debiting the bank interest paid account with bank interest received account
D debiting the petrol account with purchase of a new car

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30 What would cause a trial balance not to balance?

A a casting error in the cash account
B a transposition error in extracting the trial balance
C discounts allowed posted to discounts received account
D misposting of an invoice to a creditor’s account

31 A trial balance failed to agree. A suspense account was opened. The following errors
were then discovered.

(i) The sales returns journal had been undercast by $850.

(ii) The purchases journal had been overcast by $975.

What was the opening balance on the suspense account before the correction of errors?

A $125 credit
B $125 debit
C $1 825 credit
D $1 825 debit

32 A cheque for payment of wages of $214 has been debited to the purchases as $241. A
suspense is created.

What are the correcting entries?

Account to be debited Account to be credited

$ $
A Purchases 214 Wages 241
Suspense 27
B Wages 214 Suspense 214
C Wages 214 Purchases 241
Suspense 27
D Purchases 241 Wages 214
Suspense 27

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33 The wages of staff employed in getting goods into a saleable condition have been
debited in the income statement.

What is the effect of this error?

Gross profit Net profit

A Overstated No effect
B Overstated Overstated
C Understated No effect
D Understated Understated

34 An error of reversal is made when recording the payment of a telephone bill for $500.

Which journal entry are required to record the correction of this error?

Account to be debited Account to be credited

$ $
A Bank 500 Telephone 500
B Bank 1 000 Telephone 1 000
C Telephone 500 Bank 500
D Telephone 1 000 Bank 1 000

35 Closing inventory has been undervalued.

What is the effect on the financial statements?

Net current assets Net profit

A No effect Understated
B Overstated Overstated
C Understated No effect
D Understated Understated

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36 The difference on a trial balance is entered in a Suspense Account. It is discovered that

rent paid, $400, had been credited to Rent Receivable Account.

Which journal entry corrects the error?

Account to be debited Account to be credited

$ $
A Rent Payable 400 Suspense 800
Rent Receivable 400
B Rent Receivable 400 Suspense 400
C Suspense 400 Rent Payable 400
D Suspense 800 Rent Payable 400
Rent Receivable 400

37 A trial balance showed the balances as:

$890 321 debit
$889 617 credit
Investigations revealed that:

(i) Goods worth $500 sold to Tom on credit were only recorded in Tom’s account,
but no entry was made in the Sales Journal.
(ii) Purchases returns were understated by $204.

The balance in the suspense account is

A $296 credit
B $296 debit
C $704 credit
D $704 debit

38 Rent payable amounting to $2 500 was credited to rent receivable account.

The operating profit for the year was
A overstated by $2 500.
B understated by $2 500.

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C overstated by $5 000.
D understated by $5 000.

39 The trial balance totals are:

Debit $500 150
Credit $500 000

Which error could have caused the difference?

A a credit purchase has only been recorded in a trade payable’s account

B a credit sale has not been recorded
C a cash sale only been recorded in the sales account
D a credit sale has only been recorded in a trade receivable’s account

40 A draft income statement shows a profit for the year of $360 000. Interest received for
the year of $1 200 has been treated as interest paid.

What is the correct profit?

A $357 600
B $358 800
C $361 200
D $362 400

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