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Dear Sir,
Example 2 in the Examiner’s report 2012 is as follows:
Marlon created a suspense account with a debit balance of $1,250 in order to balance his trial balance.
He subsequently investigated and found the following errors:
(1) The closing balance of the purchase ledger control account at the current year-end has been undercast by $160
(2) Cash received of $450 from customers has only been entered into the cash account
(3) The purchase returns day book has been overcast by $300
What is the remaining debit balance on the suspense account after these errors have been corrected?The answer is $1860
Transaction (1) – an addition error in a general ledger account will cause an imbalance. As a CLOSING LIABILITY BALANCE has been undercast this will have caused a credit entry to the suspense and will need correction by debiting the suspense account and crediting the purchase ledger control account with $160.
=> I thought the PURCHASE LEDGER CONTROL ACCOUNT should have had a debit balance extracted in trial balance, because it is an EXPENSE account. Can you explain why in the explanation, they say it is a “closing liability balance”?
Transaction (3)- Does not require an entry to the suspense account as the incorrect total from the purchase returns daybook has been posted into the ledger accounts and therefore will not need adjusting through the suspense account as no imbalance has occurred. The correction journal would be to DEBIT PURCHASE LEDGER CONTROL ACCOUNT and CREDIT PURCHASE RETURNS.
=> I can understand well the explanation as for the balance of the trial balance despite the error. However, I can’t explain myself why the correction would be like that. I thought the correction for the error of purchase returns day book being overcast should have been: DEBIT PURCHASE RETURNS ACCOUNT (to reduce the value of returns) and CREDIT PAYABLE CONTROL ACCOUNT (to increase amount owed to the supplier). C
Can you please give some clarifications on these? Thank you so much and I wish you a nice day!
Kind regards,
PhuongThe purchase ledger control account is not an expense account – it is the total payables account and is therefore a liability with a credit balance.
This should explain both transaction (1) and transaction (2).
I do suggest that you watch my free lectures on Books of Prime Entry, where the various ledgers are all explained.
The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
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