JOURNAL ENTRIES &

CORRECTION OF ERRORS
GENERAL JOURNAL
USES OF GENERAL JOURNAL

Purchase &
Opening Sale of Non Non-regular Correction of
Entries Current transactions Errors
Assets
OPENING ENTRIES

• Made when the business starts or

• When the business first keeps accounting records
EXAMPLE 15.1

1 Nov 2014
• Chandra started business but did not maintain the
accounting records

1 Nov 2015
• Chandra provided the following information:
• Assets: Premises $56,000, Fixtures $19,400, Motor Vehicle
$12,500, Inventory $3,100, Trade Receivables $4,700, Cash $200
• Liabilities: Trade Payables $5,600 & Bank Overdraft $2,300
 Chandra
Journal
DATE DETAILS FO DR
 CR

($) ($)
2015

Nov 1 Premises 56 000
Fixtures 19 400
Motor Vehicle 12 500
Inventory 3 100
Trade Receivables 4 700
Cash 200
Trade Payables 5 600
Bank Overdraft 2 300
Capital 88 000
(Assets, liabilities, & Capital to open the
books)
Total 95 900 95 900
PURCHASES & SALES OF NON-CURRENT ASSETS

1 September 2016
• Purchased additional fixtures, $1,300,
on credit from Office Supplies
• Sold the motor vehicle, costed
$12,500, for $7,400 on credit to Used
Vehicle Ltd
 DATE DETAILS FO DR
 CR

($) ($)
2016

Sept 1 Fixtures 1 300
Office Supplies 1 300
(Purchase of fixtures on credit)
Disposal of Motor Vehicle
 12 500
Motor Vehicle
 12 500
Used Vehicle Ltd
 7 400
Disposal of Motor Vehicle
 7 400
(Transfer of motor vehicle account to disposal
and sale of motor vehicle on credit)
Income Statement
 5 100
Disposal of Motor Vehicle
 5 100
(Transfer of Loss on Disposal to Income
Statement)
Total 26 300 26 300
NON REGULAR TRANSACTIONS

30 Sept 2016
• Wrote off $50 owing by Ansari Stores as bad debt

31 Oct 2016
• Chandra provided following information:
• Purchases for the year totalled $39,000
• Bad debts for the year totalled $190
• Insurance $1,500, includes prepayments of $300
• Inventory at 1 November 2015 $3,100

31 Oct 2016
• Inventory was valued at $3,900
• Fixtures are to be depreciated by $2,070
• A provision for doubtful debts is created of $250
 DATE DETAILS FO DR
 CR

($) ($)
2016

Sept 30 Bad debts 50
Ansari Stores 50
(Writing off bad debts)
Oct 31 Income Statement
 39 000
Purchases
 39 000
(Transferring purchases of the year to Income
Statement)
Income Statement
 50
Bad Debts
 50
(Transferring bad debts of the year to Income
Statement)
Income Statement
 1 200
Insurance
 1 200
(Transferring Insurance of the year to Income
Statement)
DATE DETAILS FO DR
 CR

($) ($)
Income Statement
 3 100
Inventory
 3 100
(Transferring beginning inventory to Income
Statement)
Inventory
 3 900
Income Statement
 3 900
(Transferring ending inventory to Income
Statement)
Income Statement 2 070
Provision for Depreciation of Fixtures 2 070
(Annual depreciation charge transferred to the
Income Statement)
Income Statement
 250
Provision for doubtful debts
 250
(Creation of provision for doubtful debts)
Total 49620 49620
CORRECTION OF ERRORS
TYPES OF CORRECTION OF ERRORS

• NOT REVEALED ON TRIAL BALANCE

• REVEALED ON TRIAL BALANCE
ERRORS NOT REVEALED ON TRIAL BALANCE

• Error of Commission
• Error of Complete Reversal
• Error of Omission
• Error of Original Entry
• Error of Principle
• Compensating Errors
ERRORS NOT REVEALED ON TRIAL BALANCE

TYPES OF NAME OF
AMOUNT POSITION DESCRIPTION
ERROR ACCOUNT

Error of
Commission
✔ ✔ ✘ Same Class of Account

Error of Complete
Reversal ✔ ✘ ✔

Error of Omission - - -
Error of Original Occurs in Books of Prime
Entry
✘ ✔ ✔ Entry

Error of Principle ✔ ✔ ✘ Different Class of Account

Compensating Two or more errors which

Errors ✘ ✔ ✔ cancel each other out
EXAMPLE 15.4

• On 31 October 20-7, the totals of the trial balance agreed, but the
following errors were later discovered:
1. The purchase of stationery, $30, had been debited to the
purchases account
2. A cheque, $500, received from K Singh had been credited to
the account of H Singh
3. The wages account had been under-cast by $100 and the
purchases account had been over-cast by $ 100
Journal entries
to correct
errors?
Steps to make correction entry

• Identify the errors

• Identify the correct entry
• Record the correction entry
 EXAMPLE 15.4

No INCORRECT ENTRY
+ CORRECTION
= CORRECT ENTRY

a Purchases $30 Stationery $30 Stationery $30

Bank/ cash/ Purchases Bank/ cash/ petty
$30 $30 $30
petty cash cash

b Bank / cash $500 TR - H Singh $500 Bank / cash $500

H Singh $500 TR - K Singh $500 K Singh $500

c Wages $100
Purchases $100
 Chandra
Journal
DR
 CR

DATE DETAILS FO
$ $
2017
 
 30
Oct 31 Stationery

Purchases
 30
(Error in posting stationery to purchases now
corrected)
H Singh
 500
K Singh

(Error in posting cheque to wrong personal account 500
now corrected)
Wages
 100
Purchases

(Wages under-cast and purchases over-cast, now 100
corrected)
TOTAL 630 630
Errors which Affect a Trial Balance

• Errors which causes the balancing of the trial balance totals.

• The trial balance is balanced temporarily with a suspense account, until the errors are discovered.
• $ (dr) $(cr)
• Non current Assets 300 000
• Current assets 100 000
• Expenses 115 000
• Capital 300 000
• Liabilities 55 000
• Income 150 000
• Suspense account 10 000
• 515 000 $515 000
•
Errors which Affect a Trial Balance (Chapter 3)

• Error in addition within trial balance

• Error in addition within one ledger account
• Using different amount for debit and credit entry
• Recording only one aspect of a transaction,
• e.g, recording only debit entry
• Recording a transaction twice at the same side of an account
Example 15.5 & 15.6

• The totals of the trial balance prepared on 31 October 2018 failed to

agree. The difference of $260 was a shortage on the debit side. This was
entered in a suspense account. The profit for the year was $15 000.
(a)The purchases account had been over-cast by $110.
(b)No entry had been made for office expenses, $20, paid in cash.
(c) Credit sales, $630, to Anil had been correctly entered in the sales
account but debited as $360 in Anil’s account.
(d)Capital introduced by Chandra, $5 000 (paid into the bank), has
been debited to the capital account and credited to the bank
account.
Example 15.5, 15.6 & 15.7

(e)A cheque, $200, received from a debtor, Yuvraj, has been

correctly entered in the bank account, but no other entry has
been made.
(f) Sales returns, $150, have been correctly entered in the
debtor’s account but have been credited to the purchases
returns account.

1 Journal
entries?
2 Suspense
account?
 Example 15.5, 15.6, 15.7
No

a
INCORRECT ENTRY + Suspense
CORRECTION
110
Effect on
profit for
the year
Effect on
SOFP
Capital:
= CORRECT ENTRY

110 +$110
Purchases + $110
b Office expenses $20 Cash -
Cash $20
$20 -$20
Capital:
-$20
c Trade Receivables - $360 Trade receivables - $270
TR +
Trade Receivables - $630
Anil $630 Anil $270 Anil $630
$270
Sales Suspense Sales
d Capital $5 000 Bank $10 000 Bank + Bank $5 000
Bank Capital $10 000 Capital
$5 000 $10 000 $5 000
Capital +
$10 000
e Bank $200 Suspense $200 Bank $200
(no credit entry) Trade TR - Trade Receivables
$200 $200
Receivables - Yuvraj $200 - Yuvraj

f Purchases returns 150 Sales returns $150 - $150 Capital - Sales returns $150
Trade receivables $150 Purchases returns $150 - $150 $300 Trade Receivables $150
Suspense $300
 Chandra
Journal
DR
 CR

DATE DETAILS FO
$ $
2018
 110
Oct 31 Suspense
Purchases 110
Purchases over-cast, now corrected
Office Expenses 20
Cash
Omission of cash paid for office expenses, now 20
corrected
Anil 270
Suspense
Sales, $630, incorrectly entered in Anil’s account as 270
$360, now corrected.
 Chandra
Journal
DR
 CR

DATE DETAILS FO
$ $
Bank 10 000
Capital
Capital introduced debited to capital and credited to 10 000
bank, now corrected
Suspense 200
Yuvraj
Omission of cash paid for office expenses, now 200
corrected
Sales Returns 150

Purchases Returns 150
Suspense 300
Sales returns incorrectly credited to purchases
returns, now corrected
 Nominal Ledger
Suspense Account

2018 $ 2018 $
Difference on Trial
Oct 31 Balance (Balance 260 Oct 31 Anil 270
b/d)

Purchases 110 Sales Returns 150

Yuvraj 200 Purchases Returns 150
570 570
 Effect on Profit of Correcting Errors

• All correction for income and expenses affects the profit.

• Correction made on the trading section affects both gross profit and profit
for the year.
• Correction made on the profit and loss section affects profit for the year
• Profit = Income - Expenses
• Gross Profit = Sales — Cost of Sales (Opening inventory + net Purchases
- Closing inventory)
• Profit for the year = Gross Profit + Other income - expenses
• Income , Profit ?
• Expenses , Profit?
 Effect on Profit of Correcting Errors

Statement of corrected profit for the year ended 31 October 2018

$ $
Profit for the year from Income Statement 15000
Add: Purchases over-cast (a) 110
15110
Less: Office expenses omitted (b) 20
Sales Returns understated (f) 150
Purchases Returns understated (f) 150
320
Corrected profit for the year 14790
 Effect on Statement of Financial Position of
Correcting Errors

• All corrections of Assets, Liabilities and Capital affects Statement

of Financial Position
• Correction to Profit for the year affects Capital
 Effect on Statement of Financial Position of
Correcting Errors

• Profit for the year in the capital section needs to be corrected to

$14 790 due to error (a), (b), & (f).
• Error (c) correct the amount of Trade Receivables in current assets
section to be added by $270.
• Error (d) increase the amount of capital and bank account (current
assets) by $10 000.
• Error (e) reduce the amount of Trade Receivables in current assets
section by $200.
 Corrected Statement of Financial Position

• ASSETS
• Non-current Assets
• Current Assets
• Bank (+ $10 000)
• Cash (-$20)
• Trade Receivables (+$270 - $200)
• Total Assets
 Corrected Statement of Financial Position

• CAPITAL & LIABILITIES

• Capital
• Opening Capital
• Add: Profit for the year ($15 000 +$110 - $20 - $300) $14 790
• Less: Drawings
• Closing capital (+$10 000 + $110 - $20 - $300)
• Liabilities
• Non-current Liabilities
• Current Liabilities
• Total Capital & Liabilities