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Hello. I’m not that clear enought with suspence account and correcting the errors.
I’ve tried number 16 then my answer was D but I had no idea with number 17. Please explain thoroughly step-by-step.
Thank you.A company’s draft financial statements for 20X5 showed a profit of $630,000. However, the trial balance did not agree, and a suspense account appeared in the company’s draft statement of financial position. Subsequent checking revealed the following errors:
[1] The cost of an item of plant $48,000 had been entered in the cash book and in the plant register as $4,800. Depreciation at the rate of 10% per year ($480) had been charged.
[2] Bank charges of $440 appeared in the bank statement in December 20X5 but had not been entered in the company’s records.
[3] One of the directors of the company paid $800 due to a supplier in the company’s payables ledger by a personal cheque. The bookkeeper recorded a debit in the supplier’s ledger account but did not complete the double entry for the transaction. (The company does not maintain a payables ledger control account).
[4] The payments side of the cash book had been understated by $10,000.16. Which of the above items would require an entry to the suspense account in correcting them?
(a) All four items
(b) 3 and 4 only
(c) 2 and 3 only
(d) 1, 2 and 4 only17. What would the company’s profit become after the correction of the above errors?
(a) $634,760 (b) $624,760 (c) $624,440 (d) $625,240I don’t know where you found this question, but I am surprised that the book did not explain the answer 🙂
1. No entry is needed in suspense because Dr = Cr (even though the figure was wrong).
But profit is affected because depreciation should be 4800 and not 480. So profit reduces by the difference of 43202 No entry in suspense because no Dr and no Cr.
But profit needs reducing by 440 because there is an expense that was not recorded.3. There is an entry in the suspense because there has been a Dr with no Cr.
No affect on profit because it is a payment of money owing – no extra income or expense.4. There is an entry in suspense because the total payment is wrong (but presumably the totals of the analysis columns are correct).
No affect on profit – cash does not appear in the profit statement.Hi
for (1), I’m not very understand why Dt = Ct
as they Debit PPE = 4,800 and credit 48,000
and the different 43,200 should debited to PPE ?Can you explain more further to me?
ThanksYou have not read the question properly.
It says that the entry has been made in the cash book and the plant register as 4,800.
It does not say that anywhere was credited with 48,000.
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