- April 8, 2021 at 1:18 pm #616371vikipulkaMember
- Topics: 21
- Replies: 21
You’re presented with the following draft financial statement of position….
Equity and liabilities:
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
Depreciation omitted..XX | Inventories omitted 2,000 (makes sence)
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 explainApril 8, 2021 at 3:46 pm #616471John MoffatKeymaster
- Topics: 57
- Replies: 51552
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.
- You must be logged in to reply to this topic.