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Hi
Please help.
The cash refund due to customer a was correctly treated in the cash book and then credited to the accounts receivable ledger account of customer b.
The above error require a suspense account entry.
My entry: debit receivables of customer b and credit receivables of customer a. Why is a suspense account entry needed?My guess is that the accounts would not balance. The cash refund would have required a credit in the cash book. However, customer b is also credited, whereas I think they should be debited. Therefore a suspense account would be needed in the meantime.
Here’s the necessary rectification….
At first, the A/c Rec of Customer B will be debited to nullify the effect of wrong credit entry, so
Dr A/c Rec B
Secondly, the A/c Rec of A should be debited, given that Its a Cash REFUND, so the cash book will be Credited. So, for the double entry, we’ll Debit A/c Rec of Customer A.
Dr A/c Rec A
Now that both the accounts have been debited, without any credit entry somewhere, anywhere. For this purpose, we’ll have to open a Suspense account, and following will be the correct entries.
Dr A/c Rec B
Dr A/c Rec A
Cr Suspense AccountHope it’ll help you.
Would the trial balance not balance if you leave it like that secondstar?
Let’s say the amount in question is £100. To correct, you’d need to debit by £200, which you are effectively doing if you debit A & B £100 each. If you credit the suspense account then the trial balance won’t balance (unless you debit it later). I thought the use of the suspense account was until you discover where the error is.
@neilsolaris said:
Would the trial balance not balance if you leave it like that secondstar?Let’s say the amount in question is £100. To correct, you’d need to debit by £200, which you are effectively doing if you debit A & B £100 each. If you credit the suspense account then the trial balance won’t balance (unless you debit it later). I thought the use of the suspense account was until you discover where the error is.
My dear, if you’ve made some errors in the ledgers, will it not effect the Trial Balance??
Of course it’ll…. And it’ll result in any side, debit or credit, being more or less than the other. Which will force us to open a suspense account. Note that Suspense Account is simply a ‘temporary’ solution to balance both sides. Once it’s opened, we’re bound to find the errors in the ledgers. And subsequently, entries are also made in the Suspense Account, to make it balance on Both Sides, meaning that it has a ‘Nil’ balance, and if we’ll re-prepare the Trial Balance, we’ll not be including it in the Trial Balance…..Coming onto your example, The Cr entry of 200 in Suspense account will surely, at first look, not balance the Trial Balance. But, We must know that There WERE those (100 amount) errors already, which surely have forced us to open Suspense Account, since our Trial Balance didn’t agree in presence of those errors.
In this case it’ll effect the trial balance, but errors won’t necessarily cause the trial balance not to balance.
Just to clarify, are you suggesting that you should debit the suspense account before adjusting (discovering) the errors? If so we’re in agreement. If not I don’t agree!
@neilsolaris said:
In this case it’ll effect the trial balance, but errors won’t necessarily cause the trial balance not to balance.Just to clarify, are you suggesting that you should debit the suspense account before adjusting (discovering) the errors? If so we’re in agreement. If not I don’t agree!
Yes we are in agreement…. I’m just saying that the Suspense A/c is already debited (should be since these errors cause the debit side of TB lesser than Cr side). The question started by Elle says that
‘The above error require a suspense account entry.’
And Elle basically asked ‘Why is a suspense account entry needed?’
So, I simply answered him/her the reason.
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