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(Suspense Account) A transposition error had understated sales by $900.

Forums › ACCA Forums › ACCA FA Financial Accounting Forums › (Suspense Account) A transposition error had understated sales by $900.

  • This topic has 1 reply, 2 voices, and was last updated 4 years ago by John Moffat.
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  • Author
    Posts
  • April 8, 2021 at 1:18 pm #616371
    vikipulka
    Participant
    • Topics: 19
    • Replies: 21
    • ☆

    You’re presented with the following draft financial statement of position….
    Assets XX
    Equity and liabilities:
    Capital XX
    Profit for the year XX
    Suspense account 44,900

    Upon investigation you discover the following errors:
    (5) A transposition error had understated sales by $900.
    (4) The closing inventories amounted to $12,000, but the amount shown on the statement of financial position was the opening inventories in the amount of 10,000

    Answer:
    …………………………Suspense a/c…………………
    ________________________________________
    Depreciation omitted..XX | Inventories omitted 2,000 (makes sence)
    Sales omitted……….900?|……
    TP omitted…………….XX |…….

    _______________
    So if the suspense account was recorded in Liabilities, then it means that on the left side in the Suspense account
    Assets will be decreased
    Liabilities will be increased
    On the right side:
    Assets will be increased
    Liabilities will be decreased

    So (4) we understated inventories, it means it should be +2000 in Assets, it means we should write it on the right side.
    But (5) Sales transaction doesn’t make sense for me. So the original JE should’ve been
    Dr AR Cr Sales 900. But according to this problem, we missed that. So it means, that we understated AR in the amount of 900, and it means that this amount should be added in Assets . So it should be added on the right side. BUT, i can see that in Answers they added this on the left side, so they decreased assets….it doesn’t make sense for me at all
    Please explain

    April 8, 2021 at 3:46 pm #616471
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    For (4), the inventory needs increasing by 2,000. Therefore we debit inventory and credit the suspense account.

    For (5) it is only the same account that is wrong and the figure is too low by 900. Therefore to correct it we credit sales with 900 and debit the suspense account with 900.

    Do watch my free lectures on suspense accounts. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.

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