Correcting errors

Errors and how to correct them

Despite our attempts to maintain double entry and make sure that we do not make errors, sometimes mistakes cannot be avoided. Therefore, we need strategies to correct mistakes.

We can separate errors into two types:

• ·         Errors revealed by an imbalance in the trial balance
• ·         Errors not revealed by the trial balance

We shall deal with each type in turn:

Errors revealed by an imbalance in the trial balance
Type of error	Description		Correction	Example
One-sided entry	Only one side of the double entry has been made in the ledger accounts e.g. the debit and not the credit		Make the missing entry and post the other side to the suspense account	Error £10 cash purchase only credited to cash Correction Dr Purchases £10 Cr Suspense £10
Entry duplicated on one side, nothing on the other	Instead of posting a transaction as a debit in one account and a credit in another, both accounts are posted with debit entries, or both with credit entries. One account is correct but the other is out of balance by twice the amount of the posting		Post the account that was posted on the wrong side with twice the amount, and post the other side to suspense	Error £10 cash purchase credited to both cash and purchases Correction Dr Purchases £10 Cr Suspense £20
Unequal entries normally caused by a transposition error	The correct amount is entered on one side, but there is an error in the writing in the other side of the entry. Often this is caused by a transposition error in the incorrect entry, where the digits in a number are transposed. If this is the only error in the accounts then the difference between the debits and credits will be divisible by 9		In the account with the wrong posting, post an amount to bring the entry to the right amount, and post the other side to the suspense	Error £10 cash purchase debited to purchases as £100 (correct credit to cash) Correction Dr Suspense £90 Cr Purchases £90
Account balance incorrectly transferred to the trial balance	This may be because of a calculation error when calculating the balance on a ledger account, or it may be that a balance which has been calculated correctly in the ledger is entered incorrectly to the trial balance		In the account with the wrong balance, post an amount to bring the balance to the right amount, and post the other side to suspense	Error £1,000 debit balance on purchases account written into trial balance as a£100 debit balance Correction Dr Purchases £900 Cr Suspense £900
Balance omission	A balance on a general ledger account is omitted from the trial balance completely		Enter the missing balance on the correct side and enter the suspense account with the same amount on the other side	Error £1,000 debit balance on purchases account omitted Correction Dr Purchases on Trial Balance £1,000 Cr Suspense on Trial Balance £1,000
Errors not revealed by the trial balance
Type of error		Description	Correction	Example
Error of principle		The double entry is arithmetically correct but the wrong type of account has been used (e.g. non-current asset debited with expenses)	Remove the incorrect entry and post it to the correct account	Error Motor expenses of £100 have been debited to the motor vehicles cost account Correction Dr Motor expenses £100 Cr Motor vehicles cost £100
Error of original entry		Both the debit and credit entries have been made using the wrong amount because: ·         The transaction was recorded in the book of prime entry at the incorrect amount, or ·         The wrong figure was picked up from the primary record (e.g. a transposition was made), this figure was used to write up the book of prime entry and so to make both the debit and the credit entry	In both accounts, post an amount to bring the entry to the right amount	Error Motor expenses of £100 have been recorded as £10 in the purchases day book Correction Dr Motor expenses £90 Cr PLCA £90
Error of omission		A transaction has been completely omitted from the ledger accounts	Make the appropriate posting	Error Cash purchases of £10 have not been corrected Correction Dr Purchases £10 Cr Cash £10
Reversal of entries		The correct figure has been used and a debit and a credit entry made but the debit and the credit are on the wrong side of the respective accounts	Remove the incorrect entries and make the correct ones by posting the accounts correctly but with double the amount	Error Cash purchases of £10 have been debited to cash and credited to purchases Correction Dr Purchases £20 Cr Cash £20
Error of commission		The double entry is arithmetically correct but the wrong account of the same type has been used (e.g. a phone expense is debited to the electricity account rather than the telephone account	Remove the incorrect entry and post it to the correct account	Error Motor expenses of £100 have been debited to the office expenses account Correction Dr Motor expenses £100 Cr Office expenses £100

What does this mean for the trial balance?

Before we can proceed to find the error(s), we should now create a Suspense account to hold the error until such time as we are able to clear it.

	Trial Balance					Suspense Account
Total Debits	190,467	Total Credits	191,996		Trial Balance	1,529
Suspense account	1,529
	191,996		191,996

If we draw up a trial balance and it does not balance we have to have a procedure to find errors:

1)      Check your totalling of both columns (debit and credit) – it is very easy to enter the wrong number on your calculator

2)      Calculate the difference between the two columns. This may reveal the error straight away. Divide the difference by 9, if it works out to a whole number, your error could be in a transposition of figures.

3)      Check that each account balance has been brought into the trial balance correctly.

4)      Ensure all balances from the main/nominal/general ledger have been brought into the trial balance and that the cash and bank balances are on the correct side of the trial balance.

5)      Check your balancing of each T-account.

6)      Look in each t-account for an amount that is the same as the difference you are looking for.

7)      Look in the ledger accounts for a figure that is exactly half of the difference in the trial balance. If you find one, check that the double entry has been carried out correctly for this transaction.

8)      If all else fails, check that all of your double entry has been carried out correctly.

Clearing the Suspense Account

Using the example from earlier, we will now proceed to clear the suspense account.

After finding that the trial balance did not balance and having created a suspense account to hold the difference, we have now found the following errors:

a)      Payments for motor expenses of £350 were correctly recorded in the cash payments book, but credited to the motor expenses account.

b)      Payment for postage of £67 was correctly recorded in the cash payments book but entered into the postage account as £76.

c)       An invoice (including VAT) for £470 was omitted from the sales day book.

d)      When the discounts allowed account was balanced the balance was undercast by £100.

e)      Cleaning costs of £240 were included in the cash payments book, but were not posted to the cleaning costs account.

f)       The balance from the miscellaneous expenses account of £498 was omitted from the trial balance.

Solution

We have our Suspense account in place, so now we can deal with each error in turn:

a)      Double entry that has taken place

Cr            Bank                                                      £350

Cr            Motor Expenses                                               £350

To correct this we have to reverse the error, and then make the correct entry:

Dr           Motor Expenses                               £700 (2 x £350)

Cr            Suspense                                             £700

b)      Error is £9 (£9 too much in the postages account) so we have to reduce the postages account by £9:

Dr           Suspense                                             £9

Cr            Postage                                                               £9

c)       This error has no impact on the trial balance but we must still record the sale:

Dr           SLCA                                                      £470

Cr            Sales                                                      £400

Cr            VAT                                                        £70

d)      Undercast means that we have calculated a balance that is too small.

Dr           Discounts Allowed                           £100

Cr            Suspense                                             £100

e)      The cleaning costs have not been recorde3d in the cleaning expenses account, so we must now record them.

Dr           Cleaning Costs                                  £240

Cr            Suspense                                             £240

f)       The £498 balance from the Miscellaneous Expenses account was omitted from the trial balance so we must now include it a sit should have been originally:

Dr           Miscellaneous Expenses                                £498

Cr            Suspense                                             £498

Our Suspense T-account should now be completed to ensure that it has been cleared (i.e. there is no remaining balance left on the account):

Sometimes we may be unsure where to post an amount so we can create the Suspense Account to hold the amount until we establish where we should be posting it.

E.g.        a purchase of a special part for a machine valued at £700, paid by cheque.

                Dr           Suspense                                             £700

(Because we do not know whether to debit the machine account [Asset] or maintenance account [expense])

Cr            Bank                                                      £700

               

Later, we find that we should have posted the debit entry to the machinery maintenance account so:

Dr           Machinery Maintenance              £700

Cr            Suspense                                             £700