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THINKING POINT

THINKING POINT

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THINKING POINT

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  1. THINKING POINT WHAT DO I DO IF I MADE A CARELESS MISTAKE IN MY MATHS PROBLEM SUM? WHAT DOES MY TEACHER DO WHEN HE MARKS A QUESTION WRONGLY? WHAT DOES THE CASHIER DO IF SHE GIVES ME THE WRONG CHANGE? WHAT DOES THE UNCLE AT THE GROCERY SHOP DO WHEN HE ADDS UP WRONGLY FOR MY GROCERIES?

  2. The answer is... they say sorry AND CORRECT THE ERRORS!

  3. To err is human and it is NEVER too late to AMEND!

  4. CORRECTION OF ERRORS

  5. OBJECTIVES 1. EXPLAIN & CORRECT ERRORS WHICH DO NOT AFFECT THE AGREEMENT OF THE TRIAL BALANCE TOTALS. 2. EXPLAIN AND CORRECT ERRORS WHICH AFFECT THE AGREEMENT OF THE TRAIL BALANCE TOTALS BY USING A SUSPENSE ACCOUNT. 3. RE-CALCULATE PROFITS AFTER ERRORS HAVE BEEN CORRECTED. 4. REVISE THE BALANCE SHEETS TO RECTIFY THE ERRORS.

  6. TYPES OF ERRORS ERRORS NOT REVEALED BY TRIAL BALANCE Errors ofomission ERRORS REVEALED BY TRIAL BALANCE Errors of commission Errors of omission of one entry Errors of principle Errors in calculations Errors of original entry Errors in amount Compensating errors Posting to the wrong side of an account Completereversal of entries

  7. ERRORS NOT REVEALED BY TRIAL BALANCE...ERRORS OF OMISSION EXPLANATION When a transaction has been completely omitted from the books. CORRECTION By making a double-entry to record the transaction. EXAMPLE Main

  8. ERRORS NOT REVEALED BY TRIAL BALANCE...ERRORS OF COMMISSION EXPLANATION An entry has been posted to the wrong account of the same category. CORRECTION To reverse the entry in the wrong account and to post the correct entry. EXAMPLE Main

  9. ERRORS NOT REVEALED BY TRIAL BALANCE...ERRORS OF PRINCIPLE EXPLANATION An entry has been posted to the wrong account of a different category. CORRECTION To reverse the entry in the wrong account and to post the correct entry. EXAMPLE Main

  10. ERRORS NOT REVEALED BY TRIAL BALANCE...ERRORS OF ORIGINAL ENTRY EXPLANATION A wrong amount is recorded in a book of original entry or a document such as an invoice and subsequently posted to the ledger accounts. CORRECTION To correct the difference in the correct and wrong amount accordingly. EXAMPLE Main

  11. ERRORS NOT REVEALED BY TRIAL BALANCE... COMPENSATING ERROR EXPLANATION An error on the debit side is compensated by an error of equal amount on the credit side. CORRECTION To reverse the error on both debit and credit sides of the accounts concerned. EXAMPLE Main

  12. ERRORS NOT REVEALED BY TRIAL BALANCE... COMPLETE REVERSAL OF ENTRIES EXPLANATION When recording a transaction, the debit and credit entries are reversed. CORRECTION By making the necessary posting of an amount double the amount of the original error. EXAMPLE Main

  13. ERRORS REVEALED BY TRIAL BALANCE... OMISSION OF ONE ENTRY EXPLANATION Forgetting to either debit or credit one side of a transaction. CORRECTION By making the necessary posting which has been omitted against an entry in the Suspense Account. EXAMPLE Main

  14. ERRORS REVEALED BY TRIAL BALANCE... ERRORS IN CALCULATION EXPLANATION Mistakes made in calculation. CORRECTION To account for either the overcast or undercast of figures. EXAMPLE Main

  15. ERRORS REVEALED BY TRIAL BALANCE... ERRORS IN AMOUNT EXPLANATION The amount debited and the amount credited are different. CORRECTION To account for either the overcast or undercast of figures accordingly. EXAMPLE Main

  16. ERRORS REVEALED BY TRIAL BALANCE... POSTING TO WRONG SIDE OF ACCOUNT EXPLANATION Causing one side of the ledger to be more than the other by twice the value of the error. CORRECTION To make the necessary adjustments against Suspense Account. EXAMPLE Main

  17. ERROR OF OMISSION - EXAMPLE A cash payment of $2,000 for purchases has been omitted from the books. Purchases Account $ Cash Account $ Cash 2,000 Main Purchases 2,000 Journal entry

  18. ERROR OF COMMISSION - EXAMPLE A sale of $1,000 to Carrefour has been posted to Cold Storage - Causeway Point. Cold Storage - Causeway Point $ $ Sales 1,000 Carrefour $ Carrefour 1,000 Main Journal entry Cold Storage - 1,000 Causeway Point ERROR MADE CORRECTION MADE

  19. ERROR OF PRINCIPLE - EXAMPLE Repairs to vehicles amounting to $3,000 has been posted to Vehicles Account. Vehicles Account $ $ Cash 3,000 Repairs Account $ Repairs 3,000 Main Vehicles 3,000 Journal entry ERROR MADE CORRECTION MADE

  20. ERROR OF ORIGINAL ENTRY - EXAMPLE A purchase of $2,100 from Pokka Corporation Limited by Carrefour has been entered in the Purchases Journal and posted to the ledger as $2,010. Purchases Account $ Pokka Corporation Limited 2,010 Pokka Corporation Limited $ Purchases 2,010 Pokka Corporation Limited 90 Main Journal entry Purchases 90 ERROR MADE CORRECTION MADE

  21. COMPENSATING ERROR - EXAMPLE Rent received $340 is correctly debited to the Cash Account but posted as $350 to Rent Revenue Account. Similarly, wages paid, a sum of $590, is correctly credited to the Cash Account but posted as $600 to Wages Account. Rent Revenue Account $ $ $ $ Cash 350 Wages 10 Wages Account Main Journal entry Cash 600 Rent received 10 ERROR MADE CORRECTION MADE

  22. COMPLETE REVERSAL OF ENTRIES A payment of $700 to a creditor, Carrefour, should be debited to Carrefour’s account and credited to the Cash Account, but the entries are reversed. Cash Account $ $ $ $ Carrefour 1,400 Carrefour 700 Carrefour Main Journal entry Cash 1,400 Cash 700 ERROR MADE CORRECTION MADE

  23. ERROR OF OMISSION OF ONE ENTRY - EXAMPLE A cash payment of $2,000 for purchases has been omitted from the Purchases Account. Purchases $ $ Cash 2,000 Suspense Account $ $ Purchases 2,000 Main Journal entry CORRECTION MADE

  24. ERRORS IN CALCULATION - EXAMPLE A purchase of $2,100 from Pokka Corporation Limited by Carrefour has been entered in the Purchases Journal as $2,010. The amount shown on the other account is correct. Purchases $ $ Suspense 90 Suspense Account $ $ Purchases 90 Main Journal entry CORRECTION MADE

  25. ERRORS IN AMOUNT - EXAMPLE Rates paid $210 was entered correctly in the Cash Book but wrongly entered as $120 in the Rates Account. Rates Account $ $ Suspense 90 Suspense Account $ $ Rates Account 90 Main Journal entry CORRECTION MADE

  26. POSTING TO THE WRONG SIDE OF AN ACCOUNT - EXAMPLE Discount received $100 posted to the debit side of the Discount Received Account. Suspense Account $ $ Discount Received 200 Discount Received Account $ $ Suspense Account 200 Main Journal entry CORRECTION MADE

  27. P.S.The suspense account would be self-balancing when all the errors made are detected and corrected, otherwise, it would either have a credit or debit balance when closed!

  28. Correcting Net Profit Figure Errors made in the accounts • would affect the figures in our final accounts. • Errors that affect the Gross Profit and Net Profit figures are items that are transferred to the Trading and Profit and Loss Accounts ultimately. • E.g. Sales, Rent, Commission Received etc. • Errors of items found in the Balance Sheet will not affect the profit figure, instead, they will overstate or • understate the assets and liabilities figures. • E.g. Furniture, motor vehicles, loan, bank overdraft etc.

  29. Statement of Corrected Net Profit $ $ Net Profit before COE 1,700 Add Expenses overcast XX Revenue undercast XX XX XX Less Expense undercast XX Revenue overcast XX XX Adjusted Net Profit XX Note: Overcast means showing more than there actually is Undercast means showing less than there actually is

  30. HOPE YOU HAVE ENJOYED THIS TOPIC!