Question

crial balance of Mazita, a tr 6 The trial bala entered in a that show a net profit for the uspense account. The trial balance was then used to prepar et profit for the year of RM53,670. Errors and Suspense Account Mazita's books s books comprise the usual books of prime entry, including a two-columna discount columns, and a single general ledger that January 2016 failed to agree. The difference was was then used to prepare draft final accounts 173 with cash discount colum creditors personal accounts A subsequent audit (i) At the books. quent audit revealed the following errors and omissions: At the end of the accounting vear. RM1500 rent expenses were omitted from ge general ledger that contains all the debtors' and ncluding a two-column cash book (i) Cash discount allowed to Mazlan, a debtor, of RM20 has not been entered in the cash book. eht expenses were omitted from the G) Bank charges shown in the cash book as RM430 have been entered in the bank charges account as RM340 in error. (iv) No entries had been made in the books at the end of the accounting year in respect of a stock of stationery that costs RM100. (u) A sales invoice for RM3,000 sent to Thanga has been entered in the sales day book as RM300. (vi) The debit side of the electricity account has been over-cast by RM9. (vii) Interest received of RM250 has been recorded in the books as interest paid. (viii) The total of the sales returns day book has been under-cast by RM900. (ix) A personal computer costing RM2,000 has been debited to the office expenses account erroneously. This was purchased on 1 May 2015. Office equipment is depreciated at 20% p.a on a pro-rated basis using the reducing balance method. (x) The balance on the rent and rates account shown in the ledger as RM10,000 has been entered in the trial balance as RM1,000. Required: a. Prepare the journal entries necessary to correct the above errors and omissions. For each Journal entry, give a short narrative containing the name of the type of error that has occurred. b. Show the entries in the suspense account. c. Prepare a statement showing the revised net profit for the year as at 31 January 2016 d. Briefly explain Briefly explain the reason for preparing a suspense account. I proprietor, for 30 June 2016 failed to agree and a suspense he year ended 30 June 2016 were prepared

Answer 1

a.
MAZITA
Rectification Journal entries
Account Title and Explanation	Debit(RM)	Credit(RM)
Rent expense	1,500
Suspense account		1,500
(to record rent expenses not recorded due to error of omission)
Cash discount	20
Suspense account		20
(to record cash discount expenses not recorded due to error of omission)
Bank charges	90
Suspense account		90
(to record the bank charges wrongly recorded due to error of comission)
Stationery supplies	100
Stationery expense		100
(to record the stock of stationery not recorded due error of omission)
Suspense account	2,700
Sales		2,700
(to record the sales wrongly recorded due to error of omission)
Suspense account	9
Electricity		9
(to record the rectification of electricity account overcast due to error)
Suspense account	250
Interest paid		250
(to rectify the interest paid wrongly recorded due to error of comission)
Suspense account	250
Interest received		250
(to rectify the interest received not recorded due to error of comission)
Sales return	900
Suspense account		900
(to record the sales return not recorded due to error of omission)
Office equipment	2,000
Office expense		2,000
(to rectify the entry of purchase of computers wrongly recorded as expense
due to error of principle)
Depreciation	267
Accumulated depreciation		267
(to record depreciation on computer purchase not recorded due to error of
principle)
Rent and rates	9,000
Suspense account		9,000
(to record rent and taxes incorrectly recorded due to error of omission)
b.
Suspense account
Account Title	Debit(RM)	Credit(RM)
Rent expense		1,500
Cash discount		20
Bank charges		90
Sales	2,700
Electricity	9
Interest paid	250
Interest received	250
Sales return		900
Rent and rates		9,000
Balance	8,301
	11,510	11,510
c.
Statement of revised net profit for the year as at 31 January 2016
Profit as per draft final accounts		53,670
Add: Revenues not included
Sales	2,700
Interest received	250	2,950
Less: Expense not charged due to ommission
Rent expense	1,500
Cash discount	20
Bank charges	90
Sales return	900
Rent and rates	9,000
Depreciation	267	(11,777)
Add: Expenses incorrectly recorded
Office expenses	2,000
Electricity expenses	9
Stationery expense	100
Interest expenses	250	2,359
Revised net profit		47,202

d.

Suspense account is a general ledger account and is prepared when the trial balance is not balanced or when we have any unidentified transaction.

Suspense account acts as a holding account until the error due which the trail balance was not matching has been discovered or the unknown transaction is identified.