Topic: Correction of errors

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FA – Nov 2024 – L1 – Q3a – Correction of Errors

Identify and correct accounting errors using journal entries, suspense account, and revised profit calculations.

Question

The trial balance for Aboadze Ltd for the year ended 31 December 2022 failed to agree, showing a difference of GH¢3,600, which was credited to the suspense account. The draft account reported a net profit of GH¢435,000.

During 2023, the following errors were identified:

GH¢30,000 received from the sale of old machinery was incorrectly recorded in the sales account.
The purchase day book was overstated by GH¢48,000.
A private purchase by the director worth GH¢36,000 was included in the company’s purchases.
Bank charges of GH¢14,400 were recorded in the cash book but not posted to the bank charges account.
A sale of GH¢207,000 to Kofi was correctly entered in the sales day book but posted as GH¢270,000 in the personal account.
Discount received of GH¢13,500 was incorrectly posted to the debit side of the discount allowed account.
Wages of GH¢120,000 paid were not posted from the cash book.

Required:

i) Show the journal entries to correct the errors.

ii) Write up the suspense account to eliminate the errors.

iii) Prepare a statement to show the revised profit.

Answer

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Tags: Accounting Adjustments, Error Correction, Financial Statements, Journal Entries, Suspense account, Trial Balance
Level: Level 1

Topic: Correction of errors
Series: Nov 2024

FA – May 2012 – L1 – SA – Q14 – Correction of Errors

Identifying the type of error when maintenance cost is debited to the wrong account.

Question

The amount of N500,000 for the maintenance of the factory machine was debited to the Plant and Machinery account after crediting the bank account with the same amount. Which error has been committed?

A. Complete reversal of entries
B. Error of commission
C. Error of original entry
D. Error of omission
E. Error of principle

Answer

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Tags: Error Correction, Maintenance Cost, Principle
Level: Level 1

Topic: Correction of errors
Series: MAY 2012

FA – Nov 2020 – L1 – SB – Q3b – Correction of Errors

Provide journal entries to correct errors and prepare a suspense account.

Question

Your subordinate in POP-Two Ventures, an inexperienced bookkeeper, has informed you that the trial balance failed to agree by a difference of N170,000, recorded on the credit side of a suspense account. After investigating, you discovered the following errors:

Errors	Amount (N’000)
Cash payment debited to the bank cash book	360
Overcasting of sales	700
Overcasting of purchases	700
Returns inwards omitted from the books	380
Bank charges posted into the cash book without a corresponding entry elsewhere	370
Opening receivables balance brought down incorrectly	180
PPE sold, credited to sales account instead of the correct account	5,000

Required:

i. Effect the necessary corrections by means of journal entries (11 Marks)
ii. Prepare the suspense account (4 Marks)

(Total 15 Marks)

Answer

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Tags: Financial Corrections, Journal Entries, Suspense Accounts, Trial Balance Errors
Level: Level 1

Topic: Correction of errors
Series: NOV 2020

FA – Nov 2020 – L1 – SA – Q16 – Correction of Errors

Identifies the correct journal entry to fix a sales/purchase misposting.

Question

Jone Bosco has credit facility with a local trade supplier. A purchase invoice was credited to the supplier’s account and debited to the sales account.

Which of the following journal entries will correct the error?

Account to be Debited	Account to be Credited
A. Sales	Supplier
B. Sales	Purchases
C. Sales	Payables
D. Purchases	Sales
E. Supplier	Sales

Answer

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Tags: Error Correction, Journal Entries
Level: Level 1

Topic: Correction of errors
Series: NOV 2020

FA – Nov 2012 – L1 – SB – Q6 – Correction of errors

Prepare the Royalty Account, Donald’s Account, and the Short Working Recoverable Account.

Question

Maxwell acquired the rights to run a quarry from a parcel of land owned by Donald. The agreement provided for:
i. Payment of royalty of N40 per tonne of granite quarried;
ii. A minimum payment of N2,000,000 per annum; and
iii. The right to recoup (for short workings) is to be extinguished at the end of the third year.

During the first four years of the contract, the following quantities of granite were produced:

Year	Tonnes Produced
2008	40,000
2009	48,000
2010	54,000
2011	56,000

Maxwell’s accounting year ends on 31 December, and payment to Donald is made on 1 January following the year-end.

Required:
a. Prepare the Royalty Account (3 Marks)
b. Prepare Donald’s Account (7 Marks)
c. Prepare the Short Working Recoverable Account (5 Marks)

Answer

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Tags: Financial Statements, Quarry Operations, Royalties, Short Working
Level: Level 1

Topic: Correction of errors
Series: NOV 2012

FA – Nov 2012 – L1 – SB – Q35 – Correction of Errors

Determine the effect of inventory understatement on profits for two years.

Question

In preparing a company’s financial statements for the year ended 30 September 2012, it was discovered that the company’s closing inventory was understated by N450,000. If the error remains uncorrected, the effect of this on the profits for 2012 and 2013 will be?

Answer

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Tags: Error Correction, Inventory, Profit
Level: Level 1

Topic: Correction of errors
Series: NOV 2012

FA – May 2013 – L1 – SA – Q13 – Correction of Errors

This question deals with correcting an accounting error related to partner’s drawings.

Question

The repairs of the personal vehicle of a partner’s wife were wrongly treated as part of motor vehicle expenses of the partnership. Which of the following accounting entries is required to correct the error?

Debit | Credit
A. Partner’s Drawings Account | Motor vehicle expenses account
B. Motor vehicle expenses account | Partner’s current account
C. Motor vehicle expenses account | Partner’s drawings account
D. Motor vehicle expenses account | Partner’s current account
E. Partner’s capital account | Motor vehicle expenses account

Answer

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Tags: Accounting Errors, Partner’s Drawings
Level: Level 1

Topic: Correction of errors
Series: MAY 2013

FA – May 2014 – L1 – SA – Q2 – Correction of Errors

Suspense account entries and explanation of the effects of errors on accounts and profit.

Question

The bookkeeper of Jafola Ltd, having been unable to agree the trial balance as at 31 January 2013, raised a Suspense Account in which he entered the difference. Consequently, he prepared a draft Statement of Financial Position to reflect the amount in the Suspense Account.

On investigation, the following errors were discovered:

i. The addition of the analysis column in the tabular purchase journal posted to goods purchased for resale account was found to be under-cast by N15,000, though the addition of the total column was correct.
ii. Goods bought from a supplier amounting to N5,250 had been posted to the credit of his account as N55,000.
iii. A dishonoured bill of exchange receivable for N200,000 returned by the Company’s bank had been credited to the bank account and debited to bills receivable account.
iv. An item of N10,500 entered in the sales returns book was posted to the debit of the customer who returned the goods.
v. Sundry items of plant sold amounting to N300,000 were posted to the sales day book, the total of which had been posted to the credit of the sales account.
vi. A sum of N60,000 owed by a customer was omitted from the schedule of sundry receivables.
vii. Discounts amounting to N2,250 allowed to a customer were duly entered in his account but not posted to the discounts allowed account.
viii. An amount of N45,000 being tenement rates paid in advance in the previous year was not brought forward as a balance on the tenement rates account.

You are required to:

a. Show the Suspense Account as raised by the bookkeeper with the adjusting entries. (5 Marks)

b. Explain the effect the above errors would have on the profit shown in the accounts (if not rectified) and on the total accounts. Assume the purchase and sales ledgers to be self-balancing. (10 Marks)

Answer

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Tags: Accounting Adjustments, Correction of Errors, Suspense account
Level: Level 1

Topic: Correction of errors
Series: MAY 2014

FA – May 2014 – L1 – SA – Q6 – Correcting Errors

Corrects an error in recording machinery purchase.

Question

A company purchased machinery for ₦900,000. The company’s Accountant recorded the transaction in the company’s books by debiting the Purchases Account instead of debiting a Non-Current Asset Account. Raise journal entries to correct the error.

Answer

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Tags: Error Correction, Non-current Assets, Purchases
Level: Level 1

Topic: Correction of errors
Series: MAY 2014

FA – May 2014 – L1 – SA – Q20 – Correction of errors

Determines the missing amount in the partner’s current account.

Question

What is the value of the item in the Current Account marked “X”?
A. ₦8,700
B. ₦13,060
C. ₦15,700
D. ₦16,000
E. ₦17,400

Answer

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Tags: Accounting Entries, Corrections, Current Account, Partnership
Level: Level 1

Topic: Correction of errors
Series: MAY 2014

FA – MAY 2015 – L1 – SA – Q10 – Correction of Errors

Identify the appropriate journal entry to correct the error of debiting a non-current asset to purchases.

Question

The accounting officer of a trading outfit wrongly debited the purchase of a non-current asset item to purchases account and credited it to the supplier’s account.
Which of the following journal entries is appropriate to correct the error?
A. Dr. Supplier’s account, Cr. Purchases account
B. Dr. Purchases account, Cr. Supplier’s account
C. Dr. Non-current asset account, Cr. Purchases account
D. Dr. Purchases account, Cr. Non-current asset account
E. Dr. Supplier account, Cr. Non-current asset account

Answer

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Tags: Error Correction, Non-Current Asset, Purchases Account
Level: Level 1

Topic: Correction of errors
Series: MAY 2015

FA – MAY 2015 – L1 – SA – Q9 – Correction of Errors

Determine the journal entries to correct a purchase error involving the sales account.

Question

Abalabi Ventures has a credit facility with a local trade supplier. An invoice for purchases has been credited to the supplier’s account and wrongly debited to the sales account.
Which of the following journal entries will correct the error?
A. Dr. Sales account, Cr. Supplier account
B. Dr. Supplier account, Cr. Sales account
C. Dr. Purchases account, Cr. Sales account
D. Dr. Sales account, Cr. Bank account
E. Dr. Supplier account, Cr. Cash account

Answer

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Tags: Error Correction, Journal Entries, Purchases Account
Level: Level 1

Topic: Correction of errors
Series: MAY 2015

FA – MAY 2015 – L1 – SA – Q3 – Correction of Errors

Determine the journal entries to correct an error involving telephone and motor vehicle expenses.

Question

A draft financial statement of DS Enterprises revealed that an amount of N10,000 expended on repairs of telephone was recorded as motor vehicle expenses. State the entries to reverse this error.
A. Dr. Motor vehicle expenses account, Cr. Telephone expenses account
B. Dr. Telephone expenses account, Cr. Suspense account
C. Dr. Motor vehicle account, Cr. Suspense account
D. Dr. Telephone expenses account, Cr. Motor vehicle expenses account
E. Dr. Suspense account, Cr. Telephone expenses account

Answer

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Tags: Correction of Errors, Motor Vehicle, Telephone Expenses
Level: Level 1

Topic: Correction of errors
Series: MAY 2015

FA – Mar 2023 – L1 – Q3 – Bank reconciliations | Correction of errors

Prepares an adjusted cash book and bank reconciliation statement, corrects errors through journal entries, and updates the suspense account.

Question

a) Markson’s & Co.’s cash book balance and bank statement balance at 31 March 2021 do not agree. The following information has been provided to help reconcile the difference:

The balance per the bank statement is GH¢10,000 while that of the cash book is GH¢3,300.
A cheque of GH¢6,000 issued to a supplier on 30 March 2021 was still in the supplier’s possession.
Insurance paid by the bank is GH¢400. This is yet to be recorded in the cash book.
An outgoing cheque of GH¢2,000 was recorded twice in the cash book. It is accurately recorded in the bank statement.
Payment of a GH¢1,000 cheque is recorded twice in the bank statement.
The bank statement recorded an amount of GH¢1,200 as dividends received from Kankam Ltd. There is no such transaction in the cash book.
A cheque of GH¢1,000 received from a customer was deposited at the bank on 29 March 2021, but this amount has not yet reflected in the bank statement.
Bank charges in the bank statement amounted to GH¢100.

Required:
i) Prepare an adjusted cash book to record transactions omitted. (4 marks)
ii) Prepare a bank reconciliation statement to agree the bank statement balance with the balance arrived at in (i) above. (4 marks)

b) The trial balance of Askat Enterprises as at 31 December 2021 failed to agree. A suspense account was opened for the difference. Draft final accounts were prepared that revealed a net profit of GH¢80,000 for the year ended 31 December 2021. The following errors were subsequently discovered:

The purchases day book total of GH¢160,000 had been posted to the ledger as GH¢320,000.
The sales account has been understated by GH¢240,000.
Discounts received of GH¢14,000 had been debited to discounts allowed account.
An accrued salary and wages of GH¢12,000 was omitted.
Loose tools bought for GH¢8,000 had been debited to the purchases account.
Purchases of inventory for GH¢140,000 had not been posted to the ledger.
Bad debts of GH¢19,000 written off in the trade receivables account had not been treated in the expense account.
The proprietor had withdrawn goods worth GH¢6,000 for personal use. No entries had been made in the books.

Required:
i) Prepare the journal entries to correct the errors. (6 marks)
ii) Prepare the suspense account and show the difference in the books. (3 marks)
iii) Prepare a statement to show the correct net profit for the year. (3 marks)

Answer

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Tags: Bank Reconciliation, Cash Book, Error Correction, Suspense account
Level: Level 1

Topic: Bank reconciliations, Correction of errors
Series: MAR 2023

FA – Dec 2023 – L1 – Q3 – Control accounts and account reconciliations | Correction of errors

Corrects errors using journal entries, prepares a suspense account, and explains the use of suspense and control accounts.

Question

a) Odaw Ltd operates a manual set of accounts. A trial balance was extracted for the year ended 31 March 2021. The trial balance did not agree. Odaw Ltd does not operate a system of control accounts. The following errors have now been discovered:

A cheque for GHȼ4,300 received from Kwame, a debtor, had been correctly recorded in the cash book but posted as a credit to Kwamena.
Goods purchased on credit for GHȼ2,600 from Birim Ltd. had been correctly recorded in the purchases account but the corresponding double entry had not been made.
A payment of GHȼ820 for Motor Vehicle repairs was entered in error as a debit in the Motor Vehicles account. No entries have been made to record depreciation in relation to this payment. The correct depreciation has been made for motor vehicles held by the business.
Discounts allowed of GHȼ910 had been entered as a credit entry in the discounts received account.
A cheque received for GHȼ7,500 from Awuah, a debtor, had been processed for the correct amount in the cash book but entered as GHȼ5,700 in Awuah’s account.
Sales for the year ending 31 March 2021 had been undercast by GHȼ750.

Required:

i) Prepare journal entries with narratives to correct the above errors. (7 marks)
ii) Prepare the Suspense Account. (3 marks)
iii) Explain the use of a Suspense Account. (4 marks)

b) Odaw Ltd is considering introducing a system of control accounts.

Required:
Evaluate how control accounts would assist in each of the following;
i) Detection of errors; (3 marks)
ii) Prevention of fraud. (3 marks)

Answer

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Tags: Error Detection, Fraud Prevention, Journal Entries, Suspense account
Level: Level 1

Topic: Control accounts and account reconciliations, Correction of errors
Series: DEC 2023

FA – Aug 2022 – L1 – Q3 – Correction of errors

Preparation of journal entries to correct errors, adjustment of the trial balance, and explanation of error types that do not affect the trial balance.

Question

The following list of balances was extracted from the books of Awatey at 30 April 2021:

Account	Amount (GHȼ)
Sales	134,200 (Cr)
Purchases	62,300 (Dr)
Inventory at 1 May 2020	4,700 (Dr)
Discounts received	390 (Cr)
Discounts allowed	240 (Dr)
Salaries and wages	12,700 (Dr)
Rent and rates	8,100 (Dr)
Motor vehicle expenses	7,500 (Dr)
Machinery repairs	14,200 (Dr)
General expenses	2,600 (Dr)
Machinery at cost	45,000 (Dr)
Machinery accumulated depreciation	8,000 (Cr)
Motor vehicles at cost	30,000 (Dr)
Motor vehicles accumulated depreciation	6,000 (Cr)
Bank	4,400 (Dr)
Trade receivables	4,600 (Dr)
Trade payables	2,200 (Cr)
Drawings	7,400 (Dr)
Capital at 1 May 2020	52,950 (Cr)

After the extraction of the above balances, the following errors and omissions were discovered: i) A sale on credit to Ali Baba of GHȼ800 had been entered in the Sales Journal as GHȼ80 and had also been posted to the Sales Ledger at the same amount. ii) A new Motor Vehicle costing GHȼ15,000 bought during the year had been debited to the Purchases Account. iii) Purchase of goods on credit from Agyemang Duah, amounting to GHȼ600, had been omitted from the books. iv) A cheque for GHȼ435 paid for Motor Vehicle expenses was recorded in the Cash Book and the Motor Vehicle Expenses Account as GHȼ475. v) Sales of goods on credit to Nii Ayi, amounting to GHȼ1,000, had been omitted from the books. vi) A cheque for GHȼ689 paid for general expenses was recorded in the Cash Book and the General Expenses Account as GHȼ698. vii) The purchase of machinery for GHȼ8,500 had been debited to the Machinery Repairs Account.

Required:
a) Prepare journal entries with appropriate narratives to correct each of the errors and omissions.
(8 marks)

b) Prepare the Trial Balance of Awatey as at 30 April 2021 after adjusting for the errors and omissions.
(8 marks)

c) Explain TWO (2) types of errors which would not affect the balancing of a trial balance.
(4 marks)

Answer

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Tags: Error Correction, Error Types, Journal Entries, Trial Balance
Level: Level 1

Topic: Correction of errors
Series: AUG 2022

FA – April 2022 – L1 – Q3 – Control accounts and account reconciliations | Correction of errors

Preparation of a revised Sales Ledger Control Account and a revised schedule of receivables, including the correction of errors.

Question

Gyidi Ltd sells goods on credit to most of its customers. In order to control its system of debt collection, the company maintains a sales ledger control account. The following information is available for the year ended 31 December 2020.

Account	Amount (GHȼ)
Sales Ledger Control Account balance b/d 1 January 2020	88,200 (Debit)
Sales	310,400
Sales returns	20,600
Discounts allowed	15,000
Irrecoverable debts	3,500
Cheques received from customers	292,040
Dishonored cheques	650
Contra purchases ledger	1,050

The schedule of receivables as at 31 December 2020 has also been provided as follows:

Customer	Amount (GHȼ)
Kwaku Ansah	14,200
Adam Musah	15,000
Akua Afari	22,800
Naa Shikaa	1,400
Kofi Amosah	8,600
Total	62,000

The sales Ledger Control Account balance did not agree with the total from the schedule of receivables. Subsequent investigations revealed the following errors: i) Cash received of GHȼ600 had been credited to Kwaku Ansah’s account as GHȼ60. ii) The discount allowed column in the cash book had been overstated by GHȼ960. iii) A sales return of GHȼ3,200 from Adam Musah was correctly recorded in Adam Musah’s account but had been omitted from the total in the Sales Returns Journal. iv) A credit sale of GHȼ4,000 to Kofi Amosah was correctly recorded in the Sales Journal but no entry had been made in Kofi Amosah’s account. v) A cheque received from Naa Shikaa for GHȼ2,430 correctly processed through the books had subsequently been dishonored. No entries have yet been made to record this dishonored cheque. vi) A credit sale of GHȼ5,200 had been made to Kwaku Ansah but no entries have yet been made to record this transaction. vii) Cash received of GHȼ300 had been debited to Kofi Amosah’s account. viii) No contra entry had been made in Akua Afari’s account in the Sales Ledger in respect of purchases by Gyidi Ltd from Akua Afari for goods with a list price of GHȼ750 less an 8% trade discount. This item has been correctly recorded in the Sales Ledger Control Account.

Required:
a) Prepare a revised Sales Ledger Control Account for the year ended 31 December 2020.
(9 marks)

b) Prepare a revised schedule of receivables as at 31 December 2020.
(7 marks)

c) Explain TWO (2) ways in which control accounts can be useful to businesses.
(4 marks)

Answer

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Tags: Contra Entries, Dishonored Cheques, Error Correction, Receivables, Sales Ledger Control Account
Level: Level 1

Topic: Control accounts and account reconciliations, Correction of errors
Series: APR 2022

FA – Nov 2020 – L1 – Q3 – Bank reconciliations | Correction of errors

Question on correcting errors in journal entries, preparing a suspense account, adjusting proprietor's profit, and reconciling a cash book with the bank statement.

Question

a) K. Avuledor is a sole trader with a small business. The trial balance extracted as at 31 December 2018 failed to agree. The credits exceeded the debits by GH¢26,180. A detailed examination of the books was undertaken, and the following issues were uncovered:

No entry had been made for expenses paid with cash from the petty cash till. The expenses amounted to GH¢826.
Discount received of GH¢770 was debited to discounts allowed. The entry in the payables personal account was correct.
Sales returns of GH¢6,860 were treated correctly in the customer’s account and credited to the sales returns account as GH¢6,230.
The total in the purchases day book of GH¢120,050 was debited to the purchases returns account.
The bookkeeper forgot to post the wages and salaries journal for December 2018. No payment has yet been made to employees or the Statutory Authorities. The relevant figures are as follows:
- Wages and salary costs (gross) – GH¢71,050
- Employers Social Security – GH¢6,300
- Employee income taxes (PAYE) – GH¢21,315
A sales invoice of GH¢7,350 was entered in the sales day book as GH¢6,650.
A payment for building repairs of GH¢7,315 was credited to both the Buildings account and the cash account.

Required:
i) Prepare journal entries, with appropriate narratives, necessary to correct the above errors.
(7 marks)

ii) Prepare a suspense account to clear the difference.
(3 marks)

iii) Prepare a working schedule showing the effect on the proprietor’s loss in correcting each of the above errors assuming that the loss before these adjustments was GH¢293,090.
(4 marks)

b) The cash book balance of Armah and Co. disclosed a debit balance of GH¢5,700, which did not agree with the closing favorable bank statement balance of GH¢3,350. The following were discovered during the reconciliation:

Cheques received from customers settling their debts amounting to GH¢18,500 were still in the cashier’s drawer.
GH¢800 standing order for the payment of electricity charges was paid by the bank. This has not been recorded in the books of Armah and Co.
Cheque book charge of GH¢50 is yet to be booked by Armah and Co.
The bank had debited Armah and Co in error of GH¢1,000.
A credit transfer of GH¢5,500 had been made in favor of Armah and Co. This has not been adjusted in the cash book.
As at 31 December 2019, cheques totaling GH¢12,500, which were recorded by Armah and Co as paid to suppliers, had not been presented to the bank for payment.

Required:
Prepare an adjusted cash book for Armah and Co and reconcile the adjusted cash book balance with the bank statement balance of GH¢3,350.
(6 marks)

Answer

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Tags: Bank Reconciliation, Cash Book, Journal Entries, Profit Adjustment, Suspense account
Level: Level 1

Topic: Bank reconciliations, Correction of errors
Series: NOV 2020

FA – May 2020 – L1 – Q3 – Bank reconciliations | Correction of errors

This question involves preparing an adjusted cash book, reconciling it with the bank statement, and explaining the reasons for regular bank reconciliation.

Question

a) On 15 October 2019, Mr. Ladzagla received his bank statement for the month ended 30 September 2019. The statement showed a balance of GH¢208,700 (overdraft) as at 30 September, while the cash book showed a balance of GH¢262,995 (credit) as at that date.

On examination of the cash book and the bank statement, the following were discovered:

i) Mr. Ladzagla exceeded his overdraft limit during the month of September. The bank had therefore charged him a penalty of GH¢1,250. This has not been effected in the cash book.
ii) A sum of GH¢6,250 had been credited to Ladzagla’s bank account in error by the bank.
iii) Bank charges of GH¢1,005 had not been recorded in the cash book.
iv) A cheque for GH¢6,150 had been returned by the bank as dishonoured. Due to the dishonoured cheque, the bank charged Ladzagla GH¢75. Both the dishonoured cheque and the fee charged have not been effected in the cash book.
v) Cash receipts of GH¢18,700 were posted as cash payment of GH¢23,650 in the cash book.
vi) On 21 September, Mr. Ladzagla lodged cash of GH¢3,250 to his personal bank account. This was lodged into the business bank account in error by the bank.
vii) Standing order and direct debits of GH¢5,575 had not been posted to the cash book.
viii) Payment of GH¢10,850 received from customers had been lodged in the bank account but is yet to be posted to the cash book.
ix) Lodgements of GH¢25,600 to bank on 30 September 2019 had not been credited by the bank.
x) The following cheques drawn on the bank accounts had not been presented to the bank for payment as at 30 September 2019:

Cheque Number	Date cheque was written	Amount (GH¢)
No. 3528	11 September 2019	4,200
No. 3535	28 September 2019	8,700
No. 3557	30 September 2019	18,350

Required:
i) Prepare the adjusted cash book for the month of September 2019. (8 marks)
ii) Prepare a statement on 30 September 2019 reconciling the adjusted cash book with the bank statement balance. (8 marks)
iii) State TWO (2) reasons for preparing bank reconciliation on a regular basis. (4 marks)

Answer

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Tags: Bank Reconciliation, Cash Book, Errors, Financial Statements
Level: Level 1

Topic: Bank reconciliations, Correction of errors
Series: MAY 2020

FA – Nov 2019 – L1 – Q2 – Correction of errors

Calculate specific financial ratios, discuss the advantages and disadvantages of ratio analysis, and explain the responsibilities of directors and auditors towards financial statements.

Question

a) Nene Koba, a sole trader with a small business, extracted a trial balance as at 30 June 2018, which did not agree. The credits exceeded the debits by GH¢3,275, and the difference was entered in a suspense account.

A detailed examination of the books was undertaken, and the following matters were uncovered:

Purchases returns of GH¢19,350 were credited to sales returns as GH¢11,175, and the corresponding entry was correctly entered.
An addition error was discovered in the sales returns day book, resulting in an understatement of GH¢1,600.
An amount of GH¢245 cash received from a customer was debited to the customer’s account and credited to the cash account.
The cash at hand balance of GH¢5,350 as at 30 June 2018 was omitted from the trial balance in error.
Building repairs of GH¢4,300 were undertaken during the month ended 30 June 2018. The amount was paid by cheque, and GH¢1,800 was incorrectly credited to the building account.
On 1 January 2017, rent for the year ended 31 December 2017 of GH¢22,500 was paid and accounted for correctly. Nene Koba’s landlord has indicated that rent for 2018 will increase to GH¢30,000, but no invoice has been received. Nene Koba, however, has not paid any rent for 2018 and has made no accounting entry for it because no invoice was received.
A credit sale of GH¢12,500 (excluding tax) was recorded by debiting sales with GH¢12,500 and crediting receivable with GH¢12,500. The tax rate is 15%.

Required:

i) Prepare journal entries with appropriate narrations necessary to correct the above errors. (8 marks)
ii) Prepare the Suspense account. (2 marks)

b) Ama, Baah, and Cain are in partnership, providing management services, sharing profits in the ratio 5:3:2 after charging annual salaries of GH¢6,000 each. Current accounts are not maintained. On 30 June 2019, Ama retired, and Doh was admitted into the partnership. Doh is entitled to 30% of the profits of the new partnership, with the balance being shared between Baah and Cain.

Required:

Prepare the Statement of Profit or Loss account and the Appropriation account for the year ended 30 June 2019. (10 marks)

Answer

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Tags: Correction of Errors, Journal Entries, Sole Trader, Suspense account
Level: Level 1