• 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 machine 

    A/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 debit 

    balances

    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:
    K
    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/C

     CR 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 the 

    debtors 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. Narratives 

    are not required.

    J

    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
    Solution

    KAZUNGU LTD general journal for correction of errors

    F

    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 162,000

    To 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

    N

    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 account

    ii) 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 entries 

    End 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

    UNIT 6:EXTRACTING A TRIAL BALANCEUNIT 7:CONTROL ACCOUNTS