22 SUSPENSE ACCOUNTS AND ERROR CORRECTION.pdf

SUSPENSE ACCOUNTS AND ERROR CORRECTION Suspense accounts and error correction are popular topics for examiners because they test understanding of bookkeeping principles so well A suspense account is a temporary resting place for an entry that will end up somewhere else once its final destination is determined. There are two reasons why a suspense account could be opened: 1. a bookkeeper is unsure where to post an item and enters it to a suspense account pending instructions 2. there is a difference in a trial balance and a suspense account is opened with the amount of the difference so that the trial balance agrees (pending the discovery and correction of the errors causing the difference). This is the only time an entry is made in the records without a corresponding entry elsewhere (apart from the correction of a trial balance error - see error type 8 in Table 1). Types of error Before we look at the operation of suspense accounts in error correction, we need to think about types of error - not all types affect the balancing of the records and hence the suspense account. Refer to Table 1. Table 1: Types of error Error type Suspense account involved? 1 Omission - a transaction is not recorded at all No 2 Error of commission - an item is entered to the correct side of the wrong account (there is a debit and a credit here, so the records balance) No 3 Error of principle - an item is posted to the correct side of the wrong type of account, as when cash paid for plant repairs (expense) is debited to plant account (asset) (errors of principle are really a special case of errors of commission, and once again there is a debit and a credit) No 4 Error of original entry - an incorrect figure is entered in the records and then posted to the correct account Example: Cash $1,000 for plant repairs is entered as $100; plant repairs account is debited with $100 No 5 Reversal of entries - the amount is correct, the accounts used are corre