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I have a following question:
The debit side of a trial balance totals $50 more than the credit side. Which one of the following could this be due to?
A. A purchase of goods for $50 being omitted from the payables control account
B. A sales of goods for $50 being omitted from the receivables control account
C. A invoice of $25 for electricity being credit to the electricity account
D. A receipt for $50 from customer being omitted from the cash book.My problem is why the answer is A, i dont know exactly the phrase ‘ omit from’. I think if a purchase of goods are omitted then it isn’t recorded, means we just account for one side in the payables’ credit side, is that right?
Another thing i could want to know is that why the option D would have no effect.
“Omit” means missed out.
So for A, there should be a credit in the payables control account. If this credit is missing then the total credits will be too low (and therefore the total debits will be higher than the total credits).
For D, there should be a debit in the cash account. If this debit is missing then the total debits will be too low i.e. total debits would be less that total credits.
I have the following question:
The Trial Balance of Harris at 31 Dec X13 showed a difference which was posted to the suspense account. the net profit was calculated as $47 240
the following errors were discovered:
a) purchases from Brick amounting to $765 had been received on 31 Dec 2013 and included in the closing inventory at that date, but the invoice had not been entered in the purchase ledger
isn’t it that we Dr: purchases 765
Cr: payables765how does it affect the closing inventory and the net profit?
It does not affect the closing inventory because the question says that they have been included in inventory and this is correct.
It does affect the net profit because the purchase has not been recorded. Correcting it will make purchases higher, therefore cost of sales will be higher, therefore profit will be lower.
(The double entry you have written is correct but not relevant – there is very little testing of debits and credits in the exam.)
Hi Jonh,
I’m having trouble with the bellow questionThe debit side of a trial balance totals $800 more than the credit side.
Which one of the following errors would fully account for the difference?
A. $400 paid for plant maintenance has been correctly entered in the cash book and credited to the plant asset account.
B. Discount received $400 has been debited to discount allowed account
C. A receipt of $800 for commission receivable has been omitted from the records
D. The petty cash balance of $800 has been omitted from the trial balances
The answer is B but I don’t understand why it makes Dr. $800 more than Cr. I think only $400. Please help explaining this
400 should not have been debited to disc allowed, so it needs removing. At the moment the debits are therefore too big.
400 should be a credit on disc received. At the moment it is not there and so again the debits are too big.
So in total the debits are 800 too big.
Hi Jonh,
I have problem with the below question“The Accountant at Investotech discovered the following errors after calculating the comapny’s profit for 20X3:
1. A Non Current Asset costing $50,000 has been included in the Purchases Account
2. Stationery costing $10,000 has been included as closing inventory of raw materials, instead of stationery expenses.
What is the effect of these errors on gross profit & net profit?
The answer is
Understatement of gross profit by 40,000 and underestimate of net profit by $50,000Could you explain why this is the right answer? Thanks
Hi Sir, can you explain to me why the option ” An invoice of $25 for electricity being credited to the electricity account” would make the CREDIT side HIGHER $50? Thank you.
It should have been debited because it is an expense.
Not debiting it means that the debit side is too low (so the credits side is higher by 25). The fact that they have credited with 25 means that the credits are another 25 higher, So a total of 50 too high.
Always if something is posted on the wrong side then the other side is higher by twice as much.
Have you watched my free lectures on this? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
Thanks a lot! But I couldn’t see the lecture on the topic “Correction of errors” on your channel.
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