EDUSEEDS

IGCSE Accounting 907

Correction of Errors

CONTENTS PROJECTION & COMPLETION

DATES
REMARKS
TARGET DONE
IGCSE Syllabus Requirement....................................3
IGCSE Exam Tips........................................................... 4
1 Errors and the Trial Balance .......................... 6
1.1 Errors that do not affect The Trial Balance......6
1.2 Errors Revealed by a Trial Balance ..................... 14
Section 1 Review ........................................................ 19
2 Errors and the Financial Statements....... 21
2.1 Effect on Profit when Correcting Errors ........... 21
2.2 Effect on the Statement of Financial Position
when Correcting Errors .............................................. 28
Section 2 Review ....................................................... 31
Past Year Questions – Correction of Errors
(IGACC907) ..........................................................34
IGCSE ACCOUNTING (0452)
© EDUSEEDS

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First published 2013

Second edition 2018

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IGACC0907 AB C 2 © EDUSEEDS 2023

IGCSE Syllabus Requirement

In Module 907, you must understand the following:

1. There are human errors that affect the accuracy of your Final Accounts
(Income statement and Balance sheet).

2. What it means when an error affects the Trial Balance and when it does not.

3. How to correct all types of errors (those that affect the Trial Balance and those
that do not). This includes how to use the Suspense account to balance the TB.

4. How to calculate the profit for the year after correcting all errors.

5. How to draw up the corrected Income statement and Balance sheet after
correcting errors

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IGCSE Exam Tips

1. You must be able to identify the types of errors that affect the Trial balance
i.e. the errors cause the TB not to balance.

2. You must be able to identify the types of errors that do not affect the Trial
balance (TB) still balances despite the errors.

3. Even though TB is not affected, it does not mean there was no error.
E.g. suppose you paid for an electricity bill amounting to $389 by cheque and
forgot to enter the transaction into the ledger. This will not affect the Trial
Balance. (i.e. the TB will still balance) but your profit for the year will be wrong.

4. To correct an error, you pass a journal entry to reverse the error. (see Lesson
1.1)

5. There are different types of errors:

• Error of commission
• Error of reversal
• Error of omission
• Error of original entry
• Error of principle
• Compensating error

6. Errors that DO NOT affect the TB do not require a Suspense a/c. The errors
that DO affect the TB require a Suspense a/c; otherwise the Balance sheet can
never balance.

7. Once all errors have been corrected, the suspense a/c will have a zero balance.
i.e. it will be closed by itself.
Here’s what a closed Suspense a/c may look like:

Suspense a/c
1/1 Difference on Trial balance 100 2/1 Purchases 43
5/1 Sales 20 11/1 Returns inwards 100
10/1 Discounted Received 23
143 143

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 Note – the balance in the suspense a/c is 0 once all corrections of the error
have been done. The double entries involving the suspense a/c depend on the
journal entries passed to correct the errors. (see Lesson 2.2)

8. Once all errors have been corrected, you have to recalculate the profit for the
year. Suppose in no. 7 above, the profit for the year is $1,200 before the
correction of errors. What is the correct profit for the year (after correcting the
errors)?

9. Calculate the profit for the year this way:

$ $ $
Uncorrected Profit for the year 1,200
Add: Discount received 23
Sales 20
43
Less: Purchases 43
Returns inwards 100
143
Corrected profit for the year (100)
1,100
(see Lesson 2.3)

10. Once the Income statement is prepared with the correct profit for the year, the
Balance sheet will balance. (see Lesson 2.4)

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1 Errors and the Trial Balance

1.1 Errors that do not affect The Trial Balance

Use these lines to make notes as you study the lesson.

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Reference (Lesson 1.1 & 1.2)

1. To correct errors that do not affect the Trial Balance, you make a journal entry
to reverse or correct the error.

2. In the example in the Exam Tips, you omitted to record a payment of $389 for
an Electricity bill. This is called an error of omission. How do you correct the
error? Pass a journal entry with narration to record the double entry that was
omitted:

DR CR
Electricity 389
Bank 389

Omission of recording Electricity payment entered into the books.

3. Other errors that do not affect the Trial Balance are corrected in the same way.
Suppose you paid for motor vehicle repairs of $300 in cash and entered the
following entries in error:

DR Motor Vehicle account $300

CR Cash $300

4. This is an error of principle. To correct it, you have to take the $300 out of the
Motor Vehicle account and enter it into the Motor Vehicle Repairs account. So
the journal entry will be:

DR CR
Motor Vehicle Repairs 300
Motor Vehicle 300

Reversing payment of $300 for motor vehicle repairs wrongly entered into
motor vehicle account.

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5. Sometimes, the amount in the journal entry must be double the amount in error
to correct the error. Suppose you withdrew $500 from your business bank
account for personal use and you made the following entries in error:

DR Bank $500
CR Drawing $500

6. This is an error of reversal. To correct the error, you have to make a journal
entry of $1,000 in the 2 accounts (not $500) like this:

DR Drawing $1,100
CR Bank $1.100

Error in recording amount withdrawn for personal use now corrected.

Note – The amount needs to be doubled to show a net drawing of $500 from
the bank account and the correct amount of $500 into the Drawings account.

IGACC0907 AB C 8 © EDUSEEDS 2023

Errors that Affect the Trial Balance

7. When an error affects the Trial Balance, it means the TB does not balance. In
such a case, you must open a Suspense a/c and enter the difference between
the 2 sides in the TB into the Suspense a/c.

8. If the balance in the DR in the TB is more than the CR side, put the difference into
the CR side of the suspense a/c and vice versa.
The wording in the details column should be ‘Difference on trial balance’.

9. For example, suppose there was a casting error and the Wages a/c was
overcast by $238. The TB will have a DR balance higher than the CR balance by
$238.
So, you open a suspense a/c with an opening credit balance of $238 like this:

Suspense
2/1 Difference on trial balance 238

10. Next, find the errors that contributed to the difference of $238 and make journal
entries to correct each error.

11. Once each journal entry is made, transfer the entries into the respective ledger
a/c’s including the suspense a/c.
After this is completed, the suspense a/c will have a 0 balance.

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1. List the 6 types of errors that do not affect the Trial Balance
(Trial Balance still balances despite the errors). Provide a brief explanation and
an example of each error.

Type of Error Explanation Example

i)

ii)

iii)

iv)

v)

vi)

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2. Name the types of errors and state the correct double entries for each of the
scenarios below.

a. Goods sold on credit to Russell John, $230, were not recorded in the books.

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b. Goods bought from Alvin $550 were credited to Jenny’s account.

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c. Repairs to motor vehicles paid by cheque $750 have been debited to the
motor vehicles account.

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d. The purchase of a van by cheque $2,000 was wrongly entered in the books
as $2,200 due to an error in the invoice received.

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e. Payment by cheque of $500 made to Caleb a credit supplier was debited in

the bank account and credited to Caleb’s account.

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f. Purchase account undercast by $200 and sales returns account overcast by

$200.

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IGACC0907 AB C 11 © EDUSEEDS 2023

3. Josie extracted the Trial Balance from her books. The totals of the Trial Balance
agreed but the following errors have been discovered in the ledger accounts:

a. A purchase of goods on credit from Rejoice Boutique of $2,960 had been

recorded in the books as $2,690.

b. $180 received for interest had been credited in the Commission Received
account.

c. A payment of $1,155 for repair to the computer was debited to the

Computer account.

d. Drawing of goods by owner for his private use during the year amounting
to $200 was completely omitted from the books.

e. A cheque of $1,300 issued to Silas was debited in the bank account and
credited in Silas’s account.

f. Sales Journals and Purchase Journals were both undercast by $1,000 and
posted to the ledger accounts.

Write up the correcting entries in the General Journal. Narratives are not
required.

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4. After extracting the trial balance, a trader found out that he had made the
following errors. His trial balance was not affected by the errors.

a. Cash amount of $500 paid for rent was completely omitted from the books.

b. $300 received from Tim, a credit customer was wrongly entered in

Timothy’s account, another credit customer.

c. Purchase of equipment worth $1,000 was wrongly entered into the

equipment repairs account.

d. Goods sold to Mike for $3000 on credit was entered in the books as $300.

Make the correct entries in the general journal with narratives.

IGACC0907 AB C 13 © EDUSEEDS 2023

1.2 Errors Revealed by a Trial Balance
Use these lines to make notes as you study the lesson.

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1. What are the 5 reasons for errors that may cause a trial balance not to
balance?

i. _____________________________________________________________________________

ii. _____________________________________________________________________________

iii. _____________________________________________________________________________

iv. _____________________________________________________________________________

v. _____________________________________________________________________________

2. Explain what a Suspense Account is.

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3. Chris prepared his trial balance on 31 Dec 2018. The trial balance showed a
shortage of $330 on the credit side. This amount was entered in a suspense
account.

The following errors were later discovered.

a. Sales journal had been undercast by $100.

b. Sales of $250 to Colin had been debited in error to Caleb’s account.
c. Rent account had been undercast by $70.
d. Discounts Received account had been undercast by $300.
e. The sale of motor vehicle at net book value had been credited in error to
Sales account $360.

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Show the journal entries necessary to correct the errors and draw up the suspense
account after the errors described have been corrected.

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4. Kasbah’s trial balance on 31 October 2017 did not agree. $200 was entered on
the credit side of the trial balance as a suspense account balance and a draft
financial statement was prepared. Later, the following errors were discovered.

a. The purchase account was added wrong and now was overstated by
$300.
b. A credit customer, Mark, had $450 in his account which had already been
written off.
c. A discount received of $300 was entered in the debit side of the discount
received account.
d. A cheque for $500 paid to James, credit supplier was entered in the credit
side of James’ account.
e. Wages of $400, paid by cheque was omitted from the wages account.

Show the journal entries required to correct the above errors and prepare the
suspense account with the relevant entries. If the suspense account has a
balance after all the errors were corrected, state what the balance means.

IGACC0907 AB C 17 © EDUSEEDS 2023

IGACC0907 AB C 18 © EDUSEEDS 2023
Section 1 Review

Jamieson prepared his trial balance on 30 June 2018 and found that it did not
balance. He opened a suspense account with a debit balance of $260. He then
discovered the following errors.

a. Sales returns, $180, have been credited to the purchases returns account,
although correctly recorded in the debtor’s account.
b. Vehicle repairs, $250, have been debited to the motor vehicles account.
c. The purchases journal has been overcast by $100.
d. Cash taken by Jamieson for his own use, $150, have not been recorded in
the books.

Required:

1. Prepare the journal entries to correct the above errors. Narratives are not
required.
2. Prepare the suspense account, showing the necessary entries.
3. Name the type of error made in No. 2.

IGACC0907 AB C 19 © EDUSEEDS 2023

IGACC0907 AB C 20 © EDUSEEDS 2023
2 Errors and the Financial Statements

2.1 Effect on Profit when Correcting Errors

Use these lines to make notes as you study the lesson.

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Reference (Lesson 2.1 & 2.2)

1. After all corrections to errors have been made, the income statement can be
corrected. Arising out of the journal entries, some account’s balances will have
to be adjusted.

2. For example, if the Wages account was overcast by $238 (See Reference notes
for the last Sections), the wages account balance will have to be reduced by
$238 in the income statement.

3. The income statement will now show the correct profit for the year and the
Balance sheet will balance showing the correct amounts of Assets and Liabilities.

IGACC0907 AB C 22 © EDUSEEDS 2023

1. Darrel prepared his draft income statement after his trial balance failed to
balance. His profit for the year ended 30 June 2018 showed a profit for the year
of $37,000. He then discovered the following errors:

a. The purchases journal has been overcast by $700.

b. A payment of $400 for electricity has been completely omitted from the
books.
c. The closing inventory has been recorded in the income statement as
$28,000. The correct figure is actually $27,000.
d. A cheque for $500 received from Richard. P had been incorrectly posted to
the account of Alex.
e. Discount received of $1,000 had been charged as an expense in the income
statement.
f. The cost of repairs to machinery of $3,100 had been debited to the
machinery account.

Complete the statement below showing the corrected profit for Darrel for the year
ended 30 June 2018. Show clearly whether the correction of each error above
increases the profit, decreases the profit or has got no effect on the profit.

Statement of Corrected Profit for the Year ended 30 June 2018

$

Profit for the Year 37,000

a. Purchase Overcast
b. Electricity Omitted
c. Closing Inventory
d. Error of Commission
e. Discount Received
f. Machinery Repairs

Corrected Profit for the year

IGACC0907 AB C 23 © EDUSEEDS 2023

2. The trial balance has a difference of $600 in the debit column.
The profit for the year ended 30 September 2017 for Black Enterprise is $16,600.
The following errors were later discovered

a. Sales account was overcast by $700.

b. Rent was undercast by $400.
c. Cash of $500 received from Jason was entered in the Cash Book only.
d. A credit purchase of $59 from Victor was entered in the books as $95.

Required:

1. Show the journal entries to correct the errors, no narration is required.

2. Draw up the suspense account.
3. Show the corrected profit for the year ended 30 September 2017.

IGACC0907 AB C 24 © EDUSEEDS 2023

IGACC0907 AB C 25 © EDUSEEDS 2023
3. Moses’ bookkeeper extracted a trial balance on 31 December 2018 which failed
to agree by $2,050, a shortage on the credit side of the trial balance. A
suspense account was opened for the difference.
The following errors were later discovered:

a. The sales journal was overcast by $200.

b. The purchase journal was overcast by $1,800.
c. The returns outwards account had been under cast by $150.
d. The carriage outwards account had been overcast by $300.
e. Moses sold the business motor vehicle and incurred a loss of $400. This was
completely omitted from the accounts.

Required:

1. Show the correcting journal entries. Narrations are required.

2. Draw up the suspense account after the errors have been corrected.
3. Moses’ draft income statement had a profit for the year figure of $1,200. Show
the corrected profit for the year after correcting all the above errors.

IGACC0907 AB C 26 © EDUSEEDS 2023

IGACC0907 AB C 27 © EDUSEEDS 2023
2.2 Effect on the Statement of Financial Position when Correcting Errors
Use these lines to make notes as you study the lesson.

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1. Complete the table to show the effects on working capital and net profit for
items (ii) to (v). The first item has been completed as an example.

Effect on working Effect on Net

No.
Capital ($) Profit ($)
i) A cheque, $15,000 for the payment of
a motor van had not been recorded. Decrease $15,000 No effect

ii) Stock costing $500 was sold for

$1,200 cash.
iii) A machine is to be sold for cash as its
net book value, $800.
iv) A credit customer’s balance, $1,000 is
to be written off as a bad debt.
v) The provision for depreciation for
fixtures and fittings is to be increased
by $300.

2. The following SOFP of Joshua was prepared by an inexperienced bookkeeper

and contains errors.

Statement of Financial Position as at 31 March 2018

$ $
Fixed Assets Capital
Premises 22,900 Opening Balance 39,400
Motor Vehicles 10,000 Net Profit 4,800
Inventory 3,440
Current Liabilities
Current Assets Trade Payables 3,100
Trade Receivables 1,900 Drawings (4,200)
Bank 860
Fixtures & Fittings 4,000

43,100 43,100

IGACC0907 AB C 29 © EDUSEEDS 2023

After the SOFP had been prepared Joshua was informed of the following errors:

a. The cost of motor vehicle repairs, $1,000 has been posted in error to the
motor vehicles account.
b. The correct value for inventory held at 31 March 2018 was $2,300.
c. Goods, $2,260 had been sold on credit to Charles. This transaction was not
recorded in the accounts.
d. A debtor’s balance, $208 is to be written off as a bad debt.

Required:

1. Taking into account items 1 to 4 above, calculate the corrected profit for the
year ended 31 March 2018.
2. Prepare Joshua’s corrected statement of financial position as at 31 March 2018;
show clearly the totals of fixed assets and capital.

IGACC0907 AB C 30 © EDUSEEDS 2023

Section 2 Review

When Debbie extracted her Trial Balance as 31 Mar 2018, she found out it did not
agree. She opened a suspense account, prepared her Income Statement and drew
up the following Statement of Financial Position:

$ $
Assets Capital and Liabilities

Fixtures & Fittings 1,200 Balance 1 April 2017 7,500

Motor Vehicle 2,400 Profit for the Year 5,497

Current Assets Less: Drawings (5,000)

Inventory 2,917 Current Liabilities

Trade Receivables 2,154 Trade Payables 1,888
Bank 1,095 Suspense Account 9
Cash 128

9,894 9,894

After checking her records, the following errors were discovered, which will eliminate
the Suspense Account when they are corrected.

a. Cheque for $260 for the purchase of new fixtures & fittings had been
entered correctly in the cash book but had been entered in Fixtures &
Fittings Account as $200.
b. Credit note from Ruth Ltd for $60 had been entered correctly in the returns
outwards journal but had posted as $66 to Ruth Ltd.
c. Bank charges of $21 appeared in the cash book but not posted in the ledger
account.
d. Invoice for $139 for goods sold to Timothy had been correctly entered in the
sales journal but had been posted to Timothy’s account as $193.
e. The debit balance of $223 in Samson’s account at 31 Mar 2018 had been
carried down as $253 and included in the Trial Balance at that date.

Required:

1. Prepare the Suspense account.

2. Calculate the corrected Profit.
3. Prepare the corrected Statement of Financial Position.

IGACC0907 AB C 31 © EDUSEEDS 2023

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Past Year Questions – Correction of Errors (IGACC907)

We do not print the actual past year questions in our books. However, you can
access them on the IGCSE and/or other websites.

Please look up and answer the following past year questions on this topic:

1. Accounting (0452), June 2013, Paper 1, Variant 1, Q.1 (b)

2. Accounting (0452), November 2006, Paper 3, Q.2 (a)

3. Accounting (0452), November 2013, Paper 2, Variant 2, Q.4 (a)

The answers to these questions will be discussed in the Live Stream class by your
teacher. As a student, you will benefit from these discussions. However, you are
advised to attempt the questions prior to the classes.

IGACC0907 AB C 34 © EDUSEEDS 2023