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Lecture

ACCT 301 Lecture Notes - Trial Balance, Bank Statement, Bank Reconciliation


Department
Accounting
Course Code
ACCT 301
Professor
All

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Chapter 17
whilst maintaining records during the bookkeeping process, human error could occur
quite easily, and as such, it becomes necessarily important to spot the errors and
correct them accordingly.
There are various types of errors that may occur, and each is classified under one of
the following categories:
1. Omission a transaction is not recorded at all
2. Error of commission an item is entered to the correct side of the wrong account.
3. Error of principle an item is posted to the correct side of the wrong type of
account.
4. Error of original entry an incorrect figure is entered in the records and then
posted to the correct account
5. Reversal of entries the amount is correct, the accounts used are correct, but the
account that should have been debited is credited and vice versa.
6. Addition Errors figures are incorrectly added in a ledger account.
7. Posting Error
a) an entry made in one record is not posted at all
b) an entry in one record is incorrectly posted to another
8. Compensating errors two equal and opposite errors leave the trial balance
balancing
9. Trial balance errors a balance is omitted, or incorrectly extracted, in preparing
the trial balance.
The Correction of Errors
The Trial Balance
Many of us believe that the trial balance forms the bases of summarizing all the debits
and credits of the company’s nominal ledger and journal entries in order for us to simply
pull out the data to reproduce the profit and loss account and the balance sheet. While
that is so, it is further used to spot any errors that usually cause the trial balance not to
balance. In other words we find that the debits are larger than the credits or vice versa.
The following methods are often used to find and correct these errors and to further
test the accuracy of the accounts. Obviously compensating errors are the hardest to
spot since they couldn’t affect the balance of debits and credits on the trial balance.
Suspense Accounts
Errors are often corrected by the use of journal accounts or through the use of a
suspense account when the trial balance does not balance. Basically a suspense
account is a temporary account that may be used to correct any mistakes at the year-
end or whilst preparing the draft accounts. An accountant may also use it when he is
not sure of where to post a transaction. Errors 6, 7, and 8, mentioned above, require a
suspense account to correct them; otherwise only a journal entry is necessary. Trial
balance errors do not require journal entries or a suspense account, it is simply
amended.
Suppose a company revalued an asset and the accountant wasn’t sure whether he had
to create a revaluation reserve or not. The accountant may open a suspense account
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