The Journal Correcting errors, posting wages & dealing with bad debts

Transcription

1 The Journal Correcting errors, posting wages & dealing with bad debts Sales Returns for the month of September of 1,500 have been entered into the accounts as Sales Return Account Date Details p Date Details p 30/9 SRDB 1,500 Debtors Control Account Date Details p Date Details p 30/9 SRDB 1,500 The Journal will record the entries needed to put these incorrect entries right. THE JOURNAL Date Ref Details Dr Cr XX J1 Sales Returns 1,500 Debtors Control 1,500 Sales Returns 1,500 Debtors Control 1,500 Correction of error of reversal Task: Post the journal to the ledgers 1

2 Question 1 Write up the Journals below for the following errors, as at October 10th. 1. An entry for Vehicle expenses of 145 has been debited to the Vehicle Account. 2. An entry for the payment of 230 of office expenses has been recorded as 320 in both the office expenses account and the bank column of the cash book. 3. An invoice for Sales to D Brent for 3,000 has been omitted from the day book for September and must now be recorded in the Sales Account and the Debtors Control Account. 10-Oct J2 Vehicle Expenses 145 Vehicle Account 145 Correct error of principal 10-Oct J3 Bank 90 Office Expenses 90 Correct original entry error 10-Oct J4 Debtors Control 3000 Sales 2500 VAT 500 Correct error of omission Question 2 The trial balance of Louisa Lewis balanced. However, a number of errors have been found in the bookkeeping system: (ignore VAT) 1. A Credit sale of 426 to CL Dale has not been entered in the accounts. (JV23) 2. A payment by cheque for 125 to H Price Ltd, a creditor, has been recorded in the account of H Prince. (JV24) 3. The cost of 8000, for a new delivery van has been entered to the vehicle expense account (JV 25) 4. Postages of 55, paid by cheque, have been entered on the wrong side of both accounts (JV26) You are to take each error in turn and draft a correcting journal. 2

3 A SLCA 426 Sales 355 VAT 71 Correction of error of omission (*also update customers account in the Sales Ledger) B Purchase Ledger - H Price Ltd 125 Purchase Ledger - H Prince 125 Correction of error of comission C Motor Vehicles 8000 Vehicle Expenses 8000 D Postages 55 Bank 55 Postages 55 Bank 55 Question 3 Make appropriate entries in the journal below to deal with the following problems identified by your assistant as at October XX. The Company is not registered for VAT. The payment of vehicle expenses of 530 by cheque has been recorded as a debit entry in the bank account and a credit entry in the Vehicle expenses account. An invoice from Sumners Ltd for purchases of 2,500 has been entirely omitted from the day book for September. The total sales figure for September has been over cast by 50 the figure has been recorded in the debtors control account and in the sales account as 17,890 instead of 17,840. 3

4 Oct XX J25 Vehicle Expenses 530 Bank 530 Vehicle Expenses 530 Bank 530 Correction of error of reversal Oct XX J26 Purchases 2500 Purchase Ledger Control 2500 Correction of error of omission Oct XX J27 Sales Sales Ledger Control Sales Ledger Control Sales Correction of error of original entry Question 4 You work for Browns Ltd who operate an accounting procedure where control accounts are part of the double entry system. Individual supplier and customer records are kept as subsidiary accounts. The Accountant has noticed that the following errors have occurred: 1. A customers invoice has been omitted from the accounts. The invoice was dated XX for 9, inclusive of VAT. 2. A suppliers credit note has been received but not entered into the accounts. The credit note was for 1, inclusive of VAT. You are required to show the Journal Entries necessary to correct these errors as at March 6 th 20XX. 4

5 March XX J1 Sales Ledger Control 9600 Sales 8000 VAT 1600 Correction of error of omission (Invoice dated 28/2/XX) March XX J2 Purchase Ledger Control 1320 Purchases 1100 VAT 220 Correction of error of omission 5

6 Correcting Errors - The Suspense Account See the Trial Balance below:- Purchases Sales Capital Returns Outwards Returns Inwards A Lyon & Sons M Spencer Bank Cash Suspense Total Trial Balance as on 31 May Dr Cr Suspense Account May Trial Balance May Sales 5.00 May Purchases Further investigation reveals that purchases were under cast by 25 and sales were under cast by 5. We can make these corrections using double entry by posting to the purchases account and the suspense account and to the sales account and the suspense account. 6

7 The Journal May J1 Purchases Suspense Correction of Purchases undercast May J2 Suspense 5.00 Sales 5.00 Correction of Sales undercast Sales Account May Balance b/d May Suspense 5.00 May Balance c/d Jun Balance b/d Purchases Account May Balance b/d May Suspense May Balance c/d Jun Balance b/d

8 Question 5 Greens Ltd has the following trial balance. Trial Balance as on 31 May Dr Cr Purchases Sales Capital Purchase Returns Sales Returns Debtors Control Creditors Control Rent and Rates Telephone Office Expenses Vehicle Bank Cash 4, ,190 2,000 1,670 3,400 10,000 3, ,900 18, Record the balancing figure in the suspense account. Suspense Account Date Details p Date Details p 2. Further investigation on June 6 th reveals that Sales has been under cast by 500 Sales returns has been overcast by 100 Debtors Control has been under cast by 410 8

9 The Journal May J86 Suspense Sales Correction of Sales undercast May J87 Suspense Sales Returns Correction of Sales Returns overcast May J88 Debtors Control Suspense Correction of Debtors Control undercast Suspense Account May Sales May Trial Balance May Sales Returns Debtors Control

10 Sales Account May Balance b/d May Suspense May Balance c/d Jun Balance b/d Sales Returns May Balance b/d May Suspense Jun Balance b/d May Balance c/d Debtors Control May Balance b/d May Suspense May Balance c/d Jun Balance b/d Question 6 A trial balance fails to agree by 75 and the difference is placed in a suspense account. Later it is found that a credit sale for this amount has not been entered in the sales account. Which one of the following journal entries is correct? a) debit suspense account 75; credit sales account 75 b) debit suspense account 150; credit sales account 150 c) debit sales account 75; credit suspense account 75 d) credit sales account 75 10

11 Question 7 Lonsdull extracts a trial balance from his bookkeeping records on 30 September 20XX. Unfortunately the trial balance fails to balance and the difference 19 debit is placed to a suspense account pending further investigation. The following errors are later found: a) A cheque payment of 85 for office expenses has been entered in the cash book but no entry has been made in the office expenses account. b) A payment for photocopying of 87 by cheque has been correctly entered in the cash book, but is shown as 78 in the photocopying account c) The sales return account has been overcast by 100 d) Commission received of 25 has been entered twice in the account Required: Make journal entries to correct the errors and show the suspense account after the errors have been corrected. Suspense Account 30- Sep Trial Balance Office Expenses Sales Returns Photocopying 9.00 Commissions Sep J1 Office Expenses Suspense Error Correction 30-Sep J2 Photocopying 9.00 Suspense Sep J3 Suspense Sales Returns Sep J2 Commissions Suspense

12 Question 8 A copy of the trial balance for Grants Ltd as at 31 March 20XX is shown below. There is an error in the bookkeeping which has caused a difference between the total debits and credits on the trial balance. Canine Concerns Trial Balance as at 31 March 20XX Debit Credit Fees Interest received 230 Motor expenses 2450 Insurance 670 Advertising 1560 Telephone 730 Sundry expenses 3520 Motor vehicles 8500 Cash at bank 6500 Trade creditors 740 Capital 6000 Drawings Suspense Total a. Calculate the difference between debits and credits and post a suspense account in the trial balance so that it balances. b. Show the suspense account in the nominal ledger (T account). Suspense Account Mar Trial Balance

13 Question 9 The trial balance (below) for a business was drawn up on 31 October 20XX. Because it does not balance open a suspense account and include it in the trail balance. Debit Credit Sales Opening Stock Purchases Wages Motor expenses 2060 Rates and insurance 3280 Heat and light 1450 Sundry expenses 650 Van 7400 Fixtures and fittings 2100 Cash at bank 2270 Cash in hand 670 Trade creditors 3740 Capital Drawings Suspense Account Total On November 4 20XX, the bookkeeper located the following two errors. The purchases account was under cast by 100. The owner had used a business cheque to buy his mother's birthday present for 680. This was recorded in the bank account but not in the drawings account. Required: a. Show the journal entries and suspense account for the errors detected by the bookkeeper. b. Redraft the trial balance for Garden World as at 4.11.XX. Suspense Account Oct Trial Balance Nov Purchases Nov Drawings

14 04- Nov J1 Purchases Suspense J2 Drawings Suspense Redrafted Trial Balance as at XX Trial Balance as at 31 October 20XX Account Name Debit Credit Sales Opening Stock Purchases Wages Motor Expenses 2060 Rates & Insurance 3280 Heat & Light 1450 Sundry Expenses 650 Van 7400 Fixtures & Fittings 2100 Cash at Bank 2270 Cash in Hand 670 Trade Creditors 3740 Capital Drawings Suspense Total Question 10 At the end of the year, 31 March 20XX, a trial balance was prepared for a business. However, there was a difference on the trial balance (on page 26) which was posted to a suspense account. Following a search through the books, the accountant detected three errors. Error 1 A credit note for 210, received from a supplier, had been entered in the Purchases returns but not in the Purchase Ledger Control Account. Error 2 The payment of an electricity bill for 320 had been entered in the cash book but not in the heat and light account. Error 3 Purchases had been overcast by

15 Required: Determine the balance on the suspense account a. Show the journal entries necessary to correct the errors b. Show the balanced suspense account with all the entries c. Redraft the trial balance for the 1.04.XX Trial Balance as at 31 March 20XX Debit Credit Sales 172,020 Interest received 540 Opening Stock 6320 Purchases Wages Motor expenses 2100 Insurance 210 Advertising 650 Telephone 430 Heat and light 860 Sundry expenses 2560 Motor Vehicle Depreciation - Motor vehicle 8000 Cash at bank 2550 Trade creditors 4300 Capital Drawings Total Suspense Account Mar Trial Balance Mar Purchase Ledger Mar Purchases Mar Heat & Light

16 Mar J1 Purchase Ledger Suspense J2 Heat & Light Suspense J3 Suspense Purchases Redrafted Trial Balance as at 1 April 20XX Trial Balance as at 1 April 20XX Account Name Debit Credit Sales Interest received 540 Opening Stock 6320 Purchases Wages Motor Expenses 2100 Insurance 210 Advertising 650 Telephone 430 Heat & Light 1180 Sundry expenses 2560 Motor Vehicles Depreciation - Motor Vehicles 8000 Cash at bank 2550 Trade creditors 4090 Capital Drawings Suspense Total Correcting Errors - Review Questions 1. Prepare a journal entry for recording the following opening balances in a new set of accounts: capital 7,500, trade receivables 2,000, trade payables 2,500, cash at bank 8,

17 Account Name Amount Dr Cr Capital Trade Receivables Trade Payables Cash at bank A credit customer has ceased trading owing 1, plus VAT. Record the journal entry needed in the general ledger to write off this bad debt. Account Name Amount Dr Cr Bad Debt VAT Trade Receivables A new business is opening a new set of accounts. A partially completed journal to record the opening entries is shown below. Record the journal entries needed in the accounts in the general ledger of Buxton to deal with the opening entries. Account name Debit Credit Capital Cash at bank Heat and light Loan from bank Machinery Motor vehicle Petty cash Rent paid Stationery Vehicle expenses 4. A payment for rent of 4,300 has been entered into the cash book and the rent account as 3,400. What type of error is this? Error of original entry 5. The sales returns for a period of 1,276 have been entered into the ledger accounts as: Dr Sales Ledger Control Cr Sales returns 17

18 a. What type of error is this? Error of reversal b. What Journal would you post to correct this error? Debit Returns 1276 Credit SLCA 1276 Debit Returns 1276 Credit SLCA A credit note from supplier Brownley has been debited to the account of Brownlow What type of error is this? Error of Commission 7. The total of the debit balances on a trial balance was 452,362 and the credit side totalled 450,241 what is the balance on the suspense account? Account name Amount Debit Suspense 2121 Credit 8. The total of the debit balances on a trial balance was 184,266 and the credit side totalled 181,278. The business does not maintain Cash control or Bank control accounts in the general ledger. The following errors have been identified: a) A receipt of 3,250 from a customer was recorded in the Cash Book correctly but in the Sales Ledger Control Account as 2,350. b) The Discounts Allowed account was overcast by 1,000 when being balanced prior to its entry in the trial balance. c) Discounts received of 450 were debited to the Discounts Received Account and credited to the Purchase Ledger Control account. d) Purchase returns of 1,088 had been correctly entered in the Purchase Ledger Control account but had been omitted from the Purchase Returns account. Draft journal entries to remove the incorrect entries for each of these errors and make the correct ones and show how the suspense account is cleared. 18

19 Account Name Amount Dr Cr SLCA 2350 Suspense 2350 Suspense 3250 SLCA 3250 Suspense 1000 Discounts Allowed 1000 PLCA 450 Discounts Received 450 PLCA 450 Discounts Received 450 Suspense 1088 Purchase Returns 1088 Suspense Account SLCA 3250 Trial Balance 2988 Discounts Allowed 1000 SLCA 2350 Purchase Returns Advance Ltd trial balance was extracted and did not balance. The debit column of the trial balance totalled 52,673 and the credit column totalled 61,920. a) What entry would be made in the suspense account to balance the trial balance? Account name Amount Debit Suspense 9247 Credit 19

20 b) It is important to understand the types of error that are disclosed by the Trial Balance and those that are not. Show which of the errors below are, or are not disclosed by the Trial Balance. Error in the general ledger Calculating the balance on a ledger account incorrectly by 100 Recording a supplier s credit note for 800 at 80 in the purchase returns day book Forgetting to include the 200 balance on the petty cash book in the trial balance Making a debit entry for a cash sale of 150 but not the credit entry Failing to record a petty cash purchase of food for 20 (no VAT) For a purchase of stationery on credit, debiting the PLCA and crediting the stationery account Error disclosed by the trial balance Error NOT disclosed by the trial balance 10. The initial trial balance of a business includes a suspense account with a balance of 1,000. The error has been traced to the miscast of the net column of the purchases day book shown below. Date Details Invoice number Purchases Day Book Total VAT Net 31 Oct Westwood Ltd , , Oct Evans & Co Oct Lawrence Ltd , ,135 Totals 4, ,945 a) Using the picklist of account names, record the journal entries needed in the general ledger to: 10a Account Name Amount Dr Cr Purchases

21 Account Name Amount Dr Cr Purchases 3945 Account Name Amount Dr Cr Suspense b Account Name Amount Dr Cr Purchases 980 PLCA 980 Account Name Amount Dr Cr Purchases 980 PLCA The initial trial balance of a business included a suspense account. All the bookkeeping errors have now been traced and the journal entries shown below have been recorded. Journal entries Account name Debit Credit Discounts allowed 149 Discounts received 149 Suspense 256 Purchases 256 Motor expenses 893 Suspense 893 Post the journal entries to the general ledger accounts. Dates are not required. Purchases 21

22 Purchases Suspense 256 Motor Expenses Suspense 893 Suspense Purchases 256 Motor Expenses 893 Discount Received Discount Allowed 149 Discount Allowed Discount Received On 31 March a business extracted an initial trial balance which did not balance as the debit balances exceeded the credit balances by 1,148. On 1 April journal entries were prepared to correct the errors that had been found, and clear the suspense account. The list of balances in the initial trial balance, and the journal entries to correct the errors, are shown below. The journals had not yet been entered when the account balances were extracted. Taking into account the journal entries, which will clear the suspense account, re-draft the trial balance by placing the figures in the debit or credit column. 22

23 Account Name 31 March 1 April Debit Credit Machinery 52,910 52,910 Fixtures and fittings 17,835 17,835 Computers 9,920 9,920 Cash at bank 2,367 2,367 Petty cash Sales ledger control 115, ,438 Purchase ledger control 34,290 35,618 VAT owing to HM Revenue and customs 2,337 2,337 Capital 52,254 52,254 Sales 270, ,256 Purchases 78,309 78,309 Purchase returns 3,203 3,203 Wages 54,219 54,219 Maintenance expenses 3,445 3,445 Administration expenses 10,254 10,254 Marketing expenses 6,287 6,287 Premises expenses 15,244 15,244 Discount received 4,278 4,278 Discount allowed 1,288 1,468 Totals 367, ,946 Journal entries Account name Debit Credit Discount allowed 1,359 Suspense 1,359 Discount allowed 1,539 Suspense 1,539 Account name Debit Credit Purchase ledger control 664 Suspense 664 Purchase ledger control 664 Suspense

24 The Journal - Bad Debts Example Despite chasing the debt, it is clear that the balance on Baden s Account of including VAT will never be cleared without expensive legal action. The business decides to write off the balance as of October 10 th 20XX. October XX J1 Bad Debt (Expense) VAT Sales Ledger Control Write off bad debt Baden A/C October XX J1 Bad Debt (Expense) VAT Sales Ledger Control Write off bad debt P Hughes A/C Debtors Control 30- Sep Balance b/d Oct Bad Debts W/O Bad Debts Account (Expense) 10-Oct Debtors Control (Badens)

25 VAT Account 10-Oct Bad Debt (Badens) Badens Account 30- Sep Balance b/d Oct Bad Debt W/O Question 14 Today s date is 30 th June 20XX. It has been decided that the amount owing from Customer Z (95.00 incl VAT) is unlikely to be paid and your manager has authorised you to write off the account to Bad debts. Complete a Journal entry for this and make the appropriate entries in the accounts. The Journal J89 Bad Debt (Aardvark Films) VAT Account Sales Ledger Control Bad debt write off Sales Ledger Control Account Bad Debt

26 Bad Debt Account SLCA VAT Account SLCA