- This topic has 7 replies, 4 voices, and was last updated 1 year ago by
.
- Posts
Dear Sir,
I would like to ask you about this question“Drive incurred bank charges of $40, which was then credited to the bank interest receivable
account.
What was the effect upon profit for the year of recording the bank charges in this way?
A Profit will be unchanged
B Profit will be overstated by $80
C Profit will be understated by $80
D Profit will be understated by $40”The correct aswer is B and it explained that instead of reducing profit by Dr Bank charges (expense), Drive has increased it by Cr Bank interest receivables, so profit is overstated by 80$
So does it mean that Bank interest receivables is an income in SOPL, I thought it was receivables in SOFP because of its name. Could you please explain to me about the term?
Thank youThe name is confusing, but bank interest receivable is the standard wording used for interest actually received.
Fred opened a suspense account with a debit balance of $650. He discovered the following errors:
(1)
Bank interest received of $43 has been debited to the interest payable account and credited to the cash account
(2)
Cash sales of $710 have not been recorded in the sales account; the cash has been debited to cash at bank
(3)
Discounts received of $118 have only been debited to the payables control account
What should the balance on the suspense account be after these errors have been corrected?
$58 Dr
$1,242 Dr
$178 Dr
$1478 Dr
Correct Answer$1,478 Dr
Suspense account
Dr ($)
Cr ($)
Opening balance
650
Discounts received
118
Sales
710
Closing balance
1,478
1,478
1,478
1 $178 Dr – the opening balance is on the wrong side.
2 $1,242 Dr – discounts is on the wrong side.
3 $58 Dr – sales is on the wrong side.
My Question is why is interest received not included in the suspense account in this question?
Because the debit did equal the credit (even though the entry was the wrong way round).
A suspense account is only needed if the trial balance does not balance. The trial balance does not balance if the debits do not equal the credits. If the debits equal the credits then the trial balance will balance and there is no suspense account.
Please watch 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.
may i ask why we not credit discount received with the double amount. as its wrongly debit so dont we need to debit suspense with double amount for correction.
If we receive a discount from suppliers then it is correct to debit the payables account. It is not on the wrong side.
- The topic ‘Correction of errors’ is closed to new replies.