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Hallo,
In the following example:
Discounts received are income and thus, a credit balance. Recording them as a debit will have made debits in the trial balance exceed credits by $700, ie the suspense account balance is a credit of $700. So the correction is debit suspense $700, and credit discounts received $700.
The answer says: Discounts received are income and thus, a credit balance. Recording them as a debit will have made debits in the trial balance exceed credits by $700, ie the suspense account balance is a credit of $700. So the correction is debit suspense $700, and credit discounts received $700.
My Q: Is the reason for the Debits to be higher by 700 because A/P has 350 on the dr side, and the Disc rec’d a/c is wrongly debited, so the sum of the two debits equal to 700?
Thank you!
Hallo,
And one more example like this, I don’t know why my answer differs from the book’s answer:
When a trial balance was prepared, two ledger accounts were omitted:
Discounts received $6,150
Discounts allowed $7,500
To make a trial balance balance, a suspense account was opened.
What was the balance on the suspense account?
Answer: Debit $1,350
-> Suspense a/c
Dr Op. bal. 1350
Dr Disc. rec. 6150
Cr Disc. all’d 7500
But, I was going to asnwer like this as we have Dr > Cr by 1350 so,
Dr Susp. a/c 7500
Cr Susp. a/c 1350
Cr Susp. a/c 6150
Why my answer is different?
Thank you!
First question:
If the discount is 350 (which you do not write as part of the question anywhere) then indeed, entering it on the wrong side will create a difference of 2 x 250 = 700.
Your answer is wrong because when we correct for the discount allowed that has been omitted, we DR discount allowed and therefore CR suspense (not DR suspense).
Hallo,
To Q1:
Here is the text of the example to the 1st question:
“When a trial balance was prepared, a suspense account was opened. It was discovered that the only error that had been made was to record $350 of discounts received on the wrong side of the trial balance.”
My Q here was if the 700 was due to the two accounts, the A/P which has one time 350 as a Dr, and the Disc rec’d which has the wrong debit side with 350, so because of these two accounts the TB debits are more by 700 than the credits, was wondering which two accounts were making this sum, is this correct, I don’t see other possible a/cs involved?
To Q2:
I don’t understand what tells me that I have to:
Dr Disc all’d
Cr Suspense a/ce.g. initally we have:
in the A/R a/c:
Dr Sales
Cr Disc all’din the Disc all’d a/c
Dr A/R 7500
Cr Suspense a/c
– so here, if the debit side of the disc all’d a/c comes from the A/R a/c above, the only other free side left for the suspense a/c is the credit side of this a/c. So, how then we Dr this a/c with the suspense a/c, when the Dr side is taken by the A/R a/c?Do you understand my confusion? So, far I really only see the logic of the Suspense a/c being:
Dr Disc all’d 7500
Cr Disc rec’d 6150
Cr Balance 1500Thank you!
Q1: The correct entry is DR Payables and Cr Discounts received with 350.
What they have done is Dr Payables and Dr Discount received.To correct it, we need to Cr Discount received with 350 to cancel the wrong entry, and then Cr Discount received with 350 to create the correct entry.
A total Cr to discount received on 700.
Your entries are now correct.
However since after correcting the errors the balance on the suspense account must be zero, it means that the balance at the moment must be a Dr of 1350.
The correcting entries are:
Dr disc allowed Cr Suspense 7500
Cr disc received Dr Suspense 6150.If the opening balance on the suspense account was a Dr of 1350, then after putting through the above entries the balance will be zero.
Hallo,
To Q1: I know my Q is simple, but want to know anyway when the say in the answer: “Recording them as a debit will have made debits in the trial balance exceed credits by $700” – do they mean the A/P Dr 350 + Disc. rec’d 350 = 700 Dr in the TB, I guess yes, but to make sure?
To Q2: I didn’t know it is possible to debit or credit the Disc all’d and Disc rec’d directly with the suspense a/c, when these two entries were omitted, I thought I have to debit the Disc all’d with A/R a/c, and credit the Disc. rec’d with A/P and that was the only option, then transfer the balance to the suspense a/c, which would give the opposite result, but as the op. bal. of the susp. a/c is a dr and dr < cr by 1350, then this makes sense, and it seems this is how it’s done in accounting, so I’ll learn it like that, correct?
Thank you!
Q1: yes
The suspense account only ever exists because there are errors in the double entry.
When you correct the wrong entry, you make the double entry to the suspense account.
Ok, so, the omitted disc. all’d and disc rec’d and the outstanding balance, all three meet in the suspense a/c, and the disc all’d and the disc rec’d accounts are to be closed to the I/S, thanks a lot.
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