UNIT 6:CORRECTION OF ERRORS
Key unit competence: To be able to correct errors
Introductory activity 4
SHUMBUSHO is a sole proprietor whose business is to buy and
sale shoes made in local materials, operating in RUBAVU District. His
accountant is not qualified in recording financial transactions. At the end
of 2020, after recording transactions in the books and preparing a trial
balance, he was surprised to see that the total balances in the debit and
credit sides were not agreed. In the subsequent year, the trial balance
was agreed, but some source documents were not recorded.
1. What were the causes of imbalance between debit and credit
sides of trial balance?
2. If you are hired by SHUMBUSHO to help in the above two cases,
how can you assist him?
While recording transactions, posting to the various accounts and extraction of
list of account balances, it is possible for errors to be committed. Such errors
may or may not affect the totals of the list of account balances. Recall that if
the totals of the list of account balances are equal, then this shows arithmetical
accuracy in recording and posting of transactions. Now it should be said, this
does not mean non-existence of errors. It is possible for some errors not to
affect the totals being equal for the list of account balances. Some errors can
affect too the total of list of account balances. There are two major types of
errors in accounts:
• Errors that do not affect the List of account balances (trial balance)• Errors that do affect the List of account balances (trial balance).
6.1 Errors that do not affect a trial balance
Activity 6.1
ABIKIZA is an accountant in the company of MUNEZERO Ltd specialized
in buying and selling milk in MUHANGA District. When closing the
period ended 2021, the trial balance agreed. After investigation, it was
found that there were some errors in source documents and others were
committed in recording. ABIKIZA thought that all errors committed must
affect the agreement of a trial balance. Required: As someone with skills
in identification and rectification of errors, what types errors committed by
ABIKIZA?
These are errors not disclosed by the trial balance. Agreement of a trial balance
is not an absolute proof that the book-keeping has been correctly done. There
are certain book-keeping errors that do not affect the agreement of the trial
balance. It will actually balance even if such errors have been committed in the
course of book-keeping. These are:
Error of omission
It occurs when entities for certain transaction are completely omitted from the
books, such that there is no record of such transaction in the firm’s ledger and
hence the error is not reflected in the trial balance. E.g. the purchases of goods
for FRW 1,000 from supplier not recorded in the purchases and the creditor’s
account is an example of an error of omission.
Error of commission
This type of error is committed when a book-keeper posts entries of a transaction
in a wrong account of the same class. E.g. if the goods sold to MUGISHA on
credit for FRW 5,000 are debited in the account of MAHORO then this will be
an error of commission.
Error of compensating / Compensating error
This error is committed when two errors of the same magnitude on either side
of the ledger, are committed in the books, such that the errors counter-act or
cancel out each other. E.g. the purchases account was over added by FRW 50
and similarly, the sale account had also been over-added by FRW 50.
Error of duplicating
It is when one transaction is entered twice or more in the books. E.g. a sale
of goods to NIWEMWALI FRW 50,000 recorded two times in both sales day
books and debtors Account.
Complete reversal of entries
Under this, correct accounts are used but each item is shown on the wrong side
of the account. e.g. receipt of cash from Karenzi FRW 42,000 is entered on the
debits side of his account and credited in the cash book.
Error of the original entry
This error arises when an entry is incorrectly made in a book of original entry. e.g.
an invoice for FRW 12,000, MUKUNZI a creditor, is misread as FRW120,000.
This also includes error of transposition where numbers in the amount are
transposed e.g. 54 becomes 45. If the wrong amount is posted on both sides,
this will not be detected.
Error of principle
It arises when entries of transactions are posted to the wrong class of accounts.
e.g. purchases of motor van posted to the expenses account instead of machineA/C.
Application activity 6.1
i) What do you understand by errors that do not affecting a trial balance?ii) List the errors not affecting the agreement of a trial balance
6.2. Errors that affect a trial balance
Activity 6.2
BAHOZE, an independent auditor in HUYE District, was asked to conduct
an audit in CYUZUZO Co ltd dealing with cultivating and selling rice. While
auditing the books of prime entry and financial statements, she realized
that the trial balance total debit was different from credit balance. After
certain investigation, it was observed that some errors were committed in
recording.
1. How to call the errors committed by CYUZUZO Co Ltd accountant?
2. Which types of these errors?
These errors relate to incorrect additions, subtraction or entries made on wrong
side of the books. They are disclosed by a trial balance because the totals of
debit and credit sides do not agree.
Transposition errors
These are book keeping errors committed when the order of figures of amount
reversed. This affects the trial balance if the error is made on one side of the
transaction.
e.g. IRANZI the book keeper, had posted correctly to the ledger FRW11,200
received from Mukono Ltd, but entered the amount in the cash FRW11,020 or
cheque for FRW43,000 received from a debtor was recorded incorrectly in the
cashbook FRW34,000.
Arithmetical errors
These are errors that result from wrong addition and subtraction of amounts in
books of original entry. Such errors are termed in the examination question as
either under cast or overcast.
e.g. The page in purchases daybook was overcast by FRW 750
Single entry errors
These are book-keeping errors committed when the dual aspect of transactions
is not recorded along the principles of double entry system. An amount
is recorded only in one side, either as a debit entry or a credit entry without
completing the double entry. E.g. a cheque off FRW 27,240 received from a
debtor was returned by the bank unpaid. This fact was recorded in his personal
account in the ledger but not in the cashbook.
Omission of ledger balances from the trial balance
When extracting a trial balance from the ledger balances, and where a balance
of items is omitted, the trial balance total will obviously not agree.
Mis-posting errors
These errors may arise in the following circumstances:
i) An account is debited instead of being credited or vice versa. E.g. a
cheque of FRW 5,600 received from a debtor was entered correctly in
the cashbook but was posted to the debit side of his personal account in
the ledger
ii) An amount is posted into an account twice. Also, when it is debited or
credited twice. Example a credit sale of goods to Willy for FRW 13,800
was posted on the credit of his personal account twice.
iii) An expense transaction is credited as income or an income transaction is
debited as an expense. Example: discounts allowed FRW 8,400 has been
posted to credit side of discounts received account.
iv) Error of transferring balances from the general ledger to the trial balance
v) Omission of a general ledger account
Location of trial balance errors
Errors that cause a trial balance to disagree should be located and corrected in
order to agree the trial balance. The following logical procedure is followed to
trace such errors:
1) Check the arithmetical accuracy of the debit and credit column totals of
the trial balance
2) Divide the difference on the trial balance by 2, look for this as a separate
entry on the greater side of the trial balance as a wrong entry. If located,
correct by entry below the existing totals.
3) Check entries of amounts transferred from the various ledgers if correct
4) Check the preliminary balancing totals in the various ledgers if
arithmetically correct.
5) Check if ledger postings have been made correctly from the various day
books and other source documents.6) Check totals and sub-totals in the daybooks, petty cash book
Application activity 6.2
1. Name the error committed to each of the following:
i) Sales under-casted
ii) Discount allowed credited in discount received
iii) Cash payment to a creditor entered in the cashbook only
2. Francis made one error when he posted the total value of invoices
from the purchases daybook to the general ledger. He posted
FRW 274,865,000 to the debit side of the purchases account.
The correct total was FRW 274,685,000. The credit entries were
entered correctly. How is the trial balance affected by this error?
i) The total of the debit balances and the total of credit balances will
agree, but will be over casted
ii) The total of the debit balances and the total of the credit balances
will agree, but will be understated
iii) The total of the debit balances will exceed the total of the credit
balances
iv) The total of the credit balances will exceed the total of the debitbalances
6.3. Correction of errors that do not affect the trial balance
Activity 6.3
You are given the following errors:
1. Invoice from a seller ALICE not recorded in the books of prime entry
2. Goods purchased from Umwali credited in Umulisa’s account
3. Electricity bill of FRW 7,500 recorded as FRW 5,700 in both
electricity and cash a/c.
Required:
i) What is the relationship between those errors?ii) How to correct those errors?
6.3.1. Record journal entries in the general ledger to correct
errors not disclosed by the trial balance.
The errors which do not affect the agreement of the trial balance totals are
corrected by passing journal entries. The correction of these errors must still
follow the double entry principle.
In this case:
DR: The account wrongly credited
CR: The correct account
OR
DR: The correct account
CR: The account wrongly debited
Error of omission
Example 1
A record of purchases of machinery by cheque FRW 48,000 was completely
omitted from the books.
Answer
The journal entries for the correction:
Error of complete reversal
Example 3
A payment of cash FRW1,500 to ISHIMWE was entered on the receipt side of
the cash A/C, and also by error credited to ISHIMWE A/C.
The journal
ISHIMWE 3,000
Cash 3,000
Duplication error
Example 4
A purchase of goods by cash FRW 16,500 was by error recorded twice.
Cash A/C 16,500
Purchases 16,500
Compensating errors
Example 5
The purchases account was over added by FRW 50 and similarly, the sale
account had also been over-added by FRW 50.
Dr Sales A/C 50
Cr Purchases A/C 50
Error of the original entry
Example 6
An invoice for FRW 12,000, MUKUNZI a creditor, is misread as FRW 120,000.
Dr MUKUNZI 100,000
CR Purchases 100,000
Errors of principle
Example 7
Purchases of motor van posted to the expenses account instead of motor van
A/C.
Dr Motor Van A/CCR Expenses A/C
Exercises
1. Prepare journal entries necessary to correct the following errors:
The auditor of the books of accounts of Ntugasaze’s business for the year
ending 31st December 2011 revealed the following errors:
b) Furniture purchased for FRW 2,000 had been debited to the purchases
account
c) Goods purchased from Rwanda Group of companies for FRW 2,500
were credited to the account of Rwanda and company
d) An invoice from Kanimba firm for FRW 7,800 was omitted
e) Goods sold to Umutoni for FRW 1,750 were entered in the sales daybook
or sales book as FRW 1,570.
f) The salaries and wages account was over added by FRW 350 and the
rent received account had been over added by FRW 350.
Answer
a) Dr Furniture A/C FRW 2,000
Cr Purchases’ A/C FRW 2,000
b) Dr Rwanda and Company A/C FRW 2,500
Cr Rwanda group of Companies FRW 2,500
c) Dr Purchases A/C FRW 7,800
Cr Kanimba A/C FRW 7,800
d) Dr Umutoni FRW 180
Cr sales FRW 180
e) Dr Salaries and wages A/C FRW 350
Cr Rent received A/C FRW 350
2 Listed below are five errors which were used as examples earlier in this
topic. Write out the journal entries which would correct these errors.
a) A business receives an invoice for FRW 250,000 from a supplier
which was omitted from the books entirely.
b) Repairs worth FRW 150,000 were incorrectly debited to the noncurrent asset (machinery) account instead of the repairs account.
c) The bookkeeper of a business reduces cash sales by FRW 280,000
because they were not sure what the FRW 280,000 represented. In
fact, it was a withdrawal on account of profit.
d) Telephone expenses of FRW 540,000 are incorrectly debited to the
electricity account.
e) A page in the sales day book has been added up to FRW 28,425,000
instead of FRW 28,825,000.
Answer
a) DEBIT Purchases FRW 250,000
CREDIT Trade payables FRW
250,000
A transaction previously omitted
b) DEBIT Repairs A/C FRW 150,000
CREDIT Non-current asset Machinery A/C FRW
150,000
The correction of an error of principle: Repairs costs incorrectly added
to non-current asset costs
c) DEBIT Drawings FRW 280,000
CREDIT Revenue FRW
280,000
An error of principle, in which sales were reduced to compensate for
cash withdrawals not accounted for
d) DEBIT Telephone expenses FRW 540,000
CREDIT Electricity expense FRW
540,000
Correction of an error of commission: telephone expenses wrongly
charged to the electricity account
e) DEBIT Trade receivable FRW 400,000
CREDIT Revenue FRW
400,000
The correction of a casting error in the sales day book
(FRW 28,825,000 - FRW 28,425,000) = FRW 400,000
Application activity 6.3
The books of Kamali on 31st December 2016 revealed the following errors:
i) A machine purchased for FRW 15,000,000 had been debited to the
purchases account
ii) Goods sold to MAHIRWE for FRW 3,000,000 had been recorded in
MAHORO’s account
iii) A purchase of goods by cash for FRW 6,500,000 had been recorded
both on the debit and credit as FRW 5,600,000
iv) The wages account was understated by FRW 2,000,000 as also the
sales account by the same amount.
v) A sale of goods by cheque for FRW 5,000,000 had been completely
omitted from the books.
vi) Cash received from a debtor for FRW 4,000,000 was debited in thedebtors account and credited in the cash account
6.4 Correction of errors that affect the trial balance
Activity 6.4
The book keeper of a certain business has committed the following errors:
1. Cash payment was entered correctly in cash but no corresponding
entry made
2. Motor insurance was credited to distribution expenses
Required: How to correct the above errors
6.4.1. Journal entries to correct errors affecting a trial balance
For the correction of these errors, a suspense account is opened and the
difference in the trial balance is posted in this account, if the debit side of a
trial balance is smaller than this amount is debited in the suspense account and
vice versa. When the errors are discovered, they are corrected by double entry
through the suspense account. When all the errors have been discovered and
corrected, the balance on the suspense account is eliminated. In this case:
a) DR: Respective account if omitted
CR: Suspense A/C
b) DR: Suspense A/C
CR: respective account if omitted
c) If any debit entry has been made on credit side then to correct it,
double amount must be debited and vice versa.
Example 1
In IRAKOZE books at year end, an imbalance in the list of account balances was
revealed. Investigation revealed the following errors.
i) A sale of goods on credit for FRW 1,000,000 had been omitted from the
sales account
ii) Delivery and installation costs of FRW 240,000 on a new item of plant had
been recorded as a revenue expense.
iii) Settlement discount of FRW 150,000 on paying a supplier, had been
taken, even though the payment was made outside the time limit.
iv) Inventory of stationery at the end of the period of FRW 240,000 had been
ignored.
v) A purchase of raw materials of FRW 350,000 had been recorded in the
purchases account as FRW 850,000.
vi) The purchase returns day book included a sales credit note for FRW
230,000 which had been entered correctly in the account of the receivable
concerned, but included with purchases returns in the general ledger.
Required: Prepare journal entries to correct each of the above errors. Narrativesare not required.
Example 2
An accountant of KAZUNGU LTD prepared a trial balance for his company for
the month of December 2017, but failed to balance. The total on the debit side
was more than the total on credit side by FRW 33,000. He opened a suspense
account for the difference and proceeded to prepare final accounts.
During the month of January 2018 he discovered the following mistakes which
had been made in December 2017:
1. Purchases account had been under cast by FRW 2,000
2. Payment of FRW 555,000 by cheque for insurance was properly recorded
in the cash book but was posted to insurance account by mistake as
FRW 515,000
3. A sales invoice of FRW 300,000 was not recorded in the sales day book
and therefore not posted to the ledger
4. The credit side of the sales account was under added by FRW 4,000
5. Motor vehicle repairs costing FRW 50,000was debited to Motor Vehicle
account
6. Payment of FRW 680,000 cash to John a creditor was properly recorded in
John’s account but was wrongly recorded in cash book as FRW 670,000
7. The bookkeeper had made a mistake by debiting ledger fee of FRW
15,000 to the cash book but properly recorded in the ledger fee account
8. Sale of goods for FRW 600,000 on credit to Mbabazi was properly
recorded in the sales account but was wrongly recorded in Uwimbabazi
account
9. The bank column of the cash book credit side was over added by FRW
1,000
10. A credit note issued for FRW 800,000 was properly recorded in the
customer’s account but was wrongly recorded in the other account
necessary for completion of double entry as FRW 820,000
11. Discount received of FRW 6,000 was debited to discount allowed
account
Required: prepare journal entries to correct all the errors
SolutionKAZUNGU LTD general journal for correction of errors
6.4.2. Opening, preparing and clearing Suspense account
For the correction of errors affecting trial balances a suspense account is opened
and the difference in the trial balance is posted in this account. If the debit side
of a trial balance is smaller, then this amount is debited in the suspense account
and when the credit side is smaller, then this amount is credited in suspense
account.
Definition
A suspense account is a ledger account in which items owing to insufficient data
are temporarily recorded i.e. when a difference in a trial balance is disclosed. For
example, suppose that an accountant draws up a trial balance and finds that,
for some reason they cannot immediately discover why the total debits exceed
total credits by FRW 162,000.They know that there is an error somewhere, but
for the time being they open a suspense account and enter a credit of FRW
162,000 in it. This serves two purposes:
1. Because the suspense account now exists, the accountant will not forget
that there is an error (of FRW 162,000) to be sorted out.
2. Now that there is a credit of FRW 162,000 in the suspense account, the
list of account balances.
When the cause of the FRW 162,000 discrepancy is tracked down, it is
corrected by means of a journal entry.
It must be stressed that a suspense account can only be temporary. Postings to
suspense account are only made when the bookkeeper does not know yet what
to do, or when an error has occurred. Mysteries must be solved, and errors must
be corrected. When all these errors are discovered and corrected, the balance
on the suspense account is eliminated.
Example 1
Suppose it turned out that the accountant had accidentally failed to make a
credit of FRW 162,000 to purchases. The journal entry would be:
DEBIT Suspense a/c FRW 162,000
CREDIT Purchases a/c FRW 162,000To close off suspense a/c and correct error
Example 2
The bookkeeper of MURINZI Co made a transposition error when entering an
amount for sales in the sales account. Instead of entering the correct amount of
FRW 37,453,000 they entered FRW 37,543,000 transposing the 4 and 5. The
trade receivable were posted correctly, and so when total debits and credits on
the ledger accounts were compared, it was found that credits exceeded debits
by FRW (37,543,000-37,453,000) = FRW 90,000
The initial step is to equalize the total debits and credits by posting a one sided
debit entry of FRW 90,000 to a suspense account.
When the cause of the error is discovered, the double entry to correct it should
be logged in the journal as:
DEBIT Revenue FRW 90,000
CREDIT Suspense FRW 90,000
To close off suspense a/c and correct transposition error
1) Typically, they are two main reasons why suspense accounts may be
recorded.
2) On the extraction of the trial balance, the debits are not equal to the
credits and the difference is put to a suspense account.
3) Of course, the other one is when the book keeper performing double
entry is not sure where to post one side of an entry he may debit or credit
a suspense account.
Example 3:From the above example of KAZUNGU LTD, prepare a suspense account
Application activity 6.4
You are assisting the accountant of Nara ltd in preparing the accounts for
the year ended 31st December 2020. You draw up a trial balance and you
notice that the credit side is greater than the debit side by FRW 5,608,000.
You entered this difference in a suspense account.
On investigation, the following errors and omissions are found to have
occurred.
a) An invoice of FRW 1,328,000 for general insurance has been
posted to cash but not to the ledger account.
b) A customer went into liquidation just before the year end,
owing Nara Ltd FRW 428,000. The amount was taken off trade
receivables but corresponding entry to expense the irrecoverable
debt has not been made.
c) A cheque paid for purchases has been posted to the purchases
account as FRW 5,296,000 when the cheque was made out for
FRW 5,926,000
d) Motor insurance for the year for FRW 1,611,000 was credited to
distribution expenses.
Required:
i) Show the journal entries required to clear the suspense accountii) Show the suspense account in ledger account form
Skills Lab
Preparing the trial balance as at 31st March 2020, the difference was
FRW 130,000 debit. Following on your inquiry, the following errors and
omissions were rectified in the relevant accounts.
i) A balance on a customer’s account who owed FRW 10,000 had been
listed as FRW 100,000
ii) A sum of FRW 20,000 which was part of the bad debts amount w/o
in 2019 was recovered in January 2020 and had been debited to bad
debts account.
iii) Rates paid in advance at 1st April 2019 of FRW 15,000, correctly dealt
within the previous year’s accounts, had not been entered in the rates
account for the current year.
iv) Closing stock at cost FRW 150,000 had been wrongly entered on
stock-sheets as FRW15,000
v) Goods returned by a customer valued at FRW 10,000 had been entered
in the sales ledger only.
vi) Discounts received correctly entered in the cash book at FRW 25,000
had not been transferred to the discounts received account.
REQUIRED:
Preparation of suspense account to reflect the correcting entriesEnd of unit assessment
1. When posting an invoice for car repairs, FRW 870,000 was entered
on the correct side of the motor expenses account. The invoice was
for FRW 780,000. What correction should be made to the motor
expenses account?
i) Debit FRW 90,000
ii) Credit FRW 90,000
iii) Debit FRW 1,650,000
iv) Credit FRW 1,650,000
5. A suspense account shows a credit balance of FRW 130,000. This
balance could be due to which of the following?
i) Omitting a sale of FRW 130,000 from the receivables account
ii) Recording a purchase of FRW 130,000 twice in the purchases
account
iii) Failing to write off a bad debt of FRW 130,000
iv) Recording an electricity bill paid of FRW 65,000 by debiting the
bank account and crediting the electricity account.
5. UWAYO’s trial balance includes a suspense account with a credit
balance of FRW 280,000. She has discovered that a supplier’s
invoice for FRW 140,000 was entered twice in the purchases day
book. What is the balance on the suspense account after this error is
corrected?
A FRW 0
B FRW 140,000 credit
C FRW 280,000 credit
D FRW 420,000 credit