Question

The trial balance of CX Trading as at 31 December 20x5 showed a difference which was posted to a suspense account. Drafted financial statements for the year ended 31 December 20x5 were prepared showing a net profit of $23,120. The following errors were subsequently found:

 1. The purchase of a new van for $6,000 was included in the motor van expense account

 2. The debit side of the stationary account is undercast by $250

 3. There is a debit in the rent account of $400 but should be $4,000.

 4. The rates on the owner's home of $750 has been paid by the business and debited to the business' rates account.

 5. $720 included in the wages account of the business was in fact paid to the house keeper of the owner. 

 6. Purchases of inventory costing $500 paid by cheque had been totally missed out in the books.

 7. Insurance paid by cheque of $150 was credited to both accounts. 

a)  The journal entries to correct the errors of the above. Narratives not required. 

 b) A statement of correcting the profit as found in the drafted financial statements.

Answer 1

a) The Journal Entries to correct the errors

Date	Particulars (Debit)	Particulars (Credit)	Amount (Debit)	Credit (Amount)
1	Purchase Account Dr		6,000.00
		To Expenses Account		6,000.00
2	Stationary Account Dr		250.00
		To Suspense Account		250.00
3	Rent Account Dr		3,600.00
		To Suspense Account		3,600.00
4	Drawings Account Dr		750.00
		To Business Rates Account		750.00
5	Purchases Account Dr		500.00
		To Bank Account		500.00
6	Insurance Account Dr		300.00
		To Suspense Account		300.00

B) Adjusted Statement:

Profit & Loss Account
Particulars	Amount	Particulars	Amount
Purchases	6000	Profit	23120
Stationary	250	Expences Account ( Adjustment)	6000
Rent	3600	Business Rate Account (Adjustment)	750
Drawings	750
Purchases	500
Insurance	300
Actual Net Profit	18470
	29870		29870

Thank You