Correction of errors

• Correct each error with a journal entry and narrative; never alter or erase the original entry.
• A suspense account is opened temporarily for the difference on a trial balance that does not agree.
• Errors that affected only one side (or one side by a different amount) are corrected through the suspense account until it closes.
• Prepare a statement of corrected profit: only errors affecting income or expense accounts change profit.
• Errors in asset or liability accounts change the statement of financial position.

Ask: what was done, what should have been done, what fixes it?

Write down the entries that were made and the entries that should have been made. The correction is whatever turns the first into the second. For the six errors that do not affect the trial balance, no suspense account is needed.

Worked example

Prepare journal entries to correct: (a) A credit sale of $460 to M Faris was debited to M Farid’s account. (b) Purchase of office furniture $1,200 was debited to Purchases. (c) Cash sales of $85 were debited to Sales and credited to Cash. (d) A credit purchase of $370 from Pace Ltd was recorded in the books as $730.

A temporary home for the difference

If the trial balance does not agree and the error cannot be found at once, the difference is put in a suspense account so that the financial statements can be drafted. It is a temporary measure: as each error is found it is corrected through the suspense account, until the account has a nil balance.

If the debit total of the trial balance is larger, the suspense account gets a credit entry (and the reverse). Only errors where the two sides were unequal go through suspense: one side omitted, a figure transposed on one side only, an amount posted to the wrong side, or a book of prime entry miscast.

Worked example

Ravi’s trial balance at 31 December 2025 had debits of $61,450 and credits of $61,210. A suspense account was opened. Later these errors were found: (1) the sales journal was undercast by $300; (2) rent of $450 paid by bank was entered in the rent account as $540; (3) discount allowed of $120 was credited to the discount allowed account; (4) purchases returns of $90 had been posted to the supplier but not to the purchases returns account; (5) motor repairs of $600 were debited to the motor vehicles account. Prepare the journal entries and the suspense account.