Question

At the year-end of Shellix Ltd, an imbalance in the trial balance was revealed which resulted in the creation of a suspense account with a credit balance of $1 040. Investigations revealed the following errors: 1. A sale of goods on credit for $1 000 had been omitted from the sales account. ni Installation costs of $240 on a new item of plant has been recorded as a revenue expense. 3. Cash discount of $150 on paying a supplier, Cathy, has been recorded even though the payment was made outside the time limit. $ Insurance prepaid of $240 had been ignored at the end of the period. 5. A purchase of raw materials of $350 had been recorded in the purchases account as $850. 6. A credit note of $230 issued had been recorded in the purchases return journal and included in the return outwards account, but it has been correctly recorded in the customer account. REQUIRED (a) Journal entries and suspense account to correct the above errors. (b) A statement showing the adjusted profit if prior to the discovery of the errors, the profit for the year was $18 500.

Answer 1

a)
	Journal Entries For Correction of errors
SrNO	Date	Account Title	Debit	Credit
1		Account Receivables	$         1,000
		Sales		$       1,000
		( recorded omitted transaction)
2		Plant (fixed Assets)	$             240
		Installation costs (P&L)		$           240
		(to correct record of installation cost)
3		Cash Discount	$             150
		Account Payable		$           150
		(to de-recognition of cash discount)
4		Prepaid insurance
		Insurance cost
		(prepaid insurance recorded)
5		Account Payable	$             500
		Purchase account		$           500
		(reverse of excess purchase record)
6		Purchase	$             230
		Suspense
				$           230
		( to the reversal of purchase return entry)
		sales	$             230
		suspense		$           230
		(recording of sales return)
c)	Statement Showing Adjusted Profit
	Profit (before correct)		$       18,500
	Add: (Less):
	Recording omitted sales		$         1,000
	Installation cost reduced		$             240
	Cash Discount Reversed		$           -150
	Prepaid Insurance recorded (reduction in cost)		$             240
	Correction in excess purchase		$             500
	misrecording of purchase return		$           -230
	correct recording of sales return		$           -230
	Profit ( After Correction)		$       19,870