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When Peter extracts a trial balance at the end of his financial year, total debits are $213,852 and total credits are $212,390. A suspense account is created for the difference.
The following errors have been identified:
A payment of stationery $440 was Debited to the stationery account as $780.
Discounts unexpectedly collected by customers have been recorded as a credit.
Other cash income of $3,742 has only been recorded in the cash ledger account.
Correct the entries and show how the suspense account is cleared.
For discounts, the working is.,
Entry recorded. Cr Trade.
Receivables$
1310
Cr Sales.
$1310Should have been
Dr Sales. $1310. Cr Trade.
Receivables $1310Correcting entry
Dr Sales. $2620. Cr Suspense.
$2620(A debit of $1,310 reverses the initial $1,310 credit entry made in error. A further debit of $1,310 records the transaction correctly )
Please explain the workings for discounts, There is no amount for discounts allowed.
Thank you!
As I do explain in my free notes and lectures, under IAS15 we no longer use a discounts allowed account when giving discounts to customers.
Here the customer has taken a discount when we weren’t expecting them to (and presumably we were happy for them to take the discount). The entry should therefore have been Dr Sales and Cr Receivables. Given that they mistakenly credited sales instead of debiting, the correction needed is as explained in what you have typed 🙂
Hello John,
Thank you for reiterating about the discounts allowed account. However, (please excuse silly question) I still don’t understand how the figure $1,310 is got. For receivables and sales. It’s not provided in the question and only became clear in the question Solution. Please guide where I’m wrong.
Thank you!!
The initial balance on the suspense account is 213852 – 212390 = 1462 credit
After dealing with the correction for the other two items, the balance becomes 1462 – 340 – 3742 = 2620 debit, so this is remaining amount that needs correcting.
mbarrie, welcome to the Opentuition forums. I would firstly encourage you to download the notes for financial accounting that are available on this site. They are designed to be used in conjunction with lecture videos available on this site. The following video covers the topic of suspense accounts-
https://opentuition.com/acca/fa/suspense-accounts-acca-financial-accounting-fa-lectures/
If you are still having problems with topic, I would advise you to ask the tutor by using the ask the tutor forum. Hope this helps.
mbarrie, the ask the tutor forum can be found on following link-
https://opentuition.com/forum/ask-acca-tutor-forums/ask-the-tutor-acca-fa/
Again, I would like to welcome you to the Opentuition forums.
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