ILLUSTRATIVE EXAMPLE OF SUSPENSE ACCOUNT

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A suspense account is an account use to correct errors that cause disagreement in the trial balance.

It is a temporary account prepared to record discrepancies in the trial balance pending the time the errors would be located and corrected

We have already discussed suspense account extensively in the previous post, we are just going to be trying out an example,

Example

The trial balance of Kenny, an inexperienced book keeper, do not balance. It show an excess credit of 23,100.

1. Sales return Journal was overcast by N6000

2. Purchases return journal was overcast by N7000

3. In the sales book total of page no. 3 was carried forward to page 5 as N7,000 instead of 7,200 and total of page 7 was carried forward to page 8 as 6,600 instead of 6,000.

4. N6,000 cash purchase from Samuel were recorded through sales account. However, cash account was correctly credited

5. Goods purchased by cash for N3000 was correctly posted to the cash book, but incorrectly posted to the purchases account as N300.

You are required to prepared a journal entry to correct the difference between his trial balance and prepare a Suspense account to that effect.

Solution:

1.


Dr Cr
Suspense account
6,000
Sales return

6,000
(sales return book overcasted
by N6000 now corrected)



2.


Dr Cr
Purchase return
7,000
Suspense account

7,000
(Purchases return overcasted
by N7000 now corrected)


 3.


Dr Cr
Sales account
400
Suspense account
400
(sales account overcasted
by N4000 now corrected)


 4.


Dr Cr
Purchase account
6,000
Sales account
6,000
Suspense account

12,000
(Purchases wrongly recorded
through sales account,
now rectified)


5.


Dr Cr
Purchase account
2,700
Suspense

2,700
(sales return book
overcasted by N6000
now corrected)


Analysis

1. The sales return book was overcasted by N6000. To correct this overcasting, we have to decrease sales return by N6000 or credit it with N6000.

Therefore, sales return is credited with N6000 and suspense account is debited with N6000.

2. Since Purchases return account has been overcasted by N7000, We debit it by N7000 so as to correct the error. 

Similarly, suspense account is credited With N7000

3. Errors in carry forward the total of one page to another during a period finally affects the total of that book resulting in error of under/overcasting. 

Here, carry forward from page 3 to 5 resulted in undercasting of N 200 (7000-7200) and carry forward from page 7 to page 8 resulted in overcasting of N600(6600-6000). 

Therefore, there is an ovverall overcasting of 400 (N 600–200).

To correct the overcasting of 400 in the sales account, we have to reduce sales account by 400. This means we debit sales by N400 and credit suspense account by same amount.

4. The Correct entry for this transaction is to debit purchases and credit cash by N6000. Here, Cash was duly corrected, But sales was debited instead of purchase.

To correct this error, There are two things we need to do.

First, reduce or debit sales by N6000. This would be mean a debit of N6000 to sales and a N6000 credit to suspense account

Secondly, Increase or debit purchases by N6000. This would mean a debit of N6000 to purchase acount and a N6000 credit to suspense account.

Because suspense account twice, we simply credit suspense account by N12,000 to indicate that suspense account is credited twice.

5. Here, the purchases account was undercasted by 2700 (300-3000).

To account for this, we simply increase or debit purchases account and credit suspense account

Suspense account for Kenny
ParticularNParticularN
Differences23,100Purchases return7000
Sales return6000sales400


Purchases6000


Sales6000


Purchases2700

29100
29100


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