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CORRECTING ERRORS

CORRECTING ERRORS. Learning Objectives Identify types of errors Detect the errors and do the correcting journal entry Function of Suspense Account Prepare Statement of Adjusted Net Profit and Adjusted Balance Sheet. Why A Balanced Trial Balance maybe not free from errors ?.

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CORRECTING ERRORS

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  1. CORRECTING ERRORS • Learning Objectives • Identify types of errors • Detect the errors and do the correcting journal entry • Function of Suspense Account • Prepare Statement of Adjusted Net Profit and Adjusted Balance Sheet

  2. Why A Balanced Trial Balance maybe not free from errors ?

  3. Intangible Errors • Errors of Omission • Errors of Posting • Errors of Original Entry • Compensating Errors • Errors of Reversal

  4. Errors of Omission – • Transaction not yet recorded in any record • Eg: A payment of RM1,000 was made to creditor Ar Ltd by cheque. This transaction was not recorded yet. Correcting Journal Entry :

  5. Errors of Posting- • amount debited or credited is correct, but recorded in the wrong a/c • Eg : Credit sales of RM500 to Pollin was posted to Polly Correcting Journal Entry :

  6. Errors of Original Entry • Wrong amount was recorded, causing posting entry also incorrect • Eg : Credit purchase of RM353 from Bestari Ltd was recorded in purchase journal as RM335 Correcting Journal Entry :

  7. Compensating Errors • Errors in debit entry was balanced by errros in credit entry • Eg : Commission received RM650 was posted as RM560 and renatl for RM1,190 was debited as RM1,100 Correcting Journal Entry :

  8. Errors of Reversal • Correct accounts were used, but was recorded on the opposite side. • Eg : Cash purchase RM1,500 was debited to Cash A/c and credited to Purchase A/c Correcting Journal Entry :

  9. Tangible Errors * When does tangible errors happened ? * A suspense a/c will be created temporarily * Suspense A/c – debit side ( Balance Sheet – Asset) * Suspense A/c – credit side ( Balance Sheet – Liab.)

  10. Types of Tangible Errors * Incomplete Double Entry *Wrong Posting *Different amount were debited and credited * Transaction recorded by two debit entries or vice versa

  11. Incomplete Double Entry • Only one entry recorded • Eg : Cash sales RM200 was only debited to Cash A/c Correcting Journal Entry :

  12. Wrong Posting • Eg : Sales journal of RM690 was wrongly calculated as RM960 and this wrong amount was posted to sales a/c. Debtors a/c was correctly recorded. Correcting Journal Entry :

  13. Different amount were debited and credited • Eg : Wages of RM1,130 was correctly recorded in Cash Book but wrongly recorded in Wages a/c as RM1,100 Correcting Journal Entry :

  14. Transaction recorded by two debit entries or vice versa • Eg : Purchase of RM1,380 was credited to Purchase a/c and Creditors a/c Correcting Journal Entry : How this happen?

  15. Effect of Errors On Profit Or Loss

  16. REFER TO EXAMPLE 9.12 PAGE 248

  17. Trading account: Sales - Cost of good sold = Gross Profit Sales - (Opening stock + Purchases – Closing stock) = Gross Profit Sales - Opening stock - Purchases + Closing stock = Gross Profit Let’s recall… Background knowledge

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