Question

Donald’s financial year ends on 30 September. The Trial Balance prepared on 30 September 2018 showed a shortage of $2000 on the debit side. Donald entered it in a suspense account and prepared a draft income statement which showed a profit of $54000. An investigation of the books revealed the following:

1. (i) Motor vehicles costing $5000 had been incorrectly treated as purchases of goods for resale. Depreciation is provided at 20% per annum on cost.

2. (ii) The withdrawals of $3000 by the owner for his private use had been incorrectly recorded as Sundry Expenses.

3. (iii) The payment of $ 2300 for General expenses by cheque was completely omitted from the books.

4. (iv) Sales Returns account had been undercast by $600.

5. (v) A cash payment of $1250 to a supplier had been recorded only in the Cash book.

6. (vi) A cheque receipt of $2680 from a customer had been recorded in the bank account as $2860.

7. (vii) A payment of $330 for Insurance had been credited twice in the bank account.

8. (viii) A payment of $450 to B.Jack had been recorded to the debit side of J.Back account.

You are required to prepare:

(a) Journal entries to correct the above errors ( Narrations are not required)

(b) Suspense Account

(c) A statement of corrected profit.

Answer 1

	Sl. No.	Rectification entries	Debit	Credit
	(i)	Motor Vehicle A/c Dr.	$5,000
		To, Goods for resale A/c		$5,000
		Depreciation A/c   Dr.	$1,000
		To, Motor vehicle Ac/		$1,000
	(ii)	Drawings A/c Dr.	$3,000
		To, Sundry expense		$3,000
	(iii)	General expense a/c Dr.	$2,300
		To, Bank		$2,300
	(iv)	Sales return A/c Dr.	$600
		To, Suspense		$600
	(v)	Supplier A/c   Dr.	$1,250
		To, Suspense		$1,250
	(vi)	Suspense A/c	$180
		To, bank		$180
	(vii)	Bank A/c Dr.	$330
		To, suspense		$330
	(viii)	No entry required
		Suspense Account
b		Particulars	Debit	Credit
		Opening balance	$2,000
		Sales return A/c		$600
		Supplier A.c		$1,250
		Bank Account	$180	$330
			$2,180	$2,180
C		Statement of Corrected Profit
		Opening profit	$54,000
		Less: Depreciation	-$1,000
		General expense	-$2,300
		Sales return	-$600
		Add: Goods for resale	$5,000
		Corrected Profit	$55,100

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