Chapter 7 Correction of Errors (II): Errors Affecting Trial Balance Agreement
QUESTION 1
Tom Tong runs a stationery business. The trial balance as at 31 December 2010 did not agree. Mr Tong opened a suspense account to record the trial balance difference. The draft net profit for the year amounted to $88,888. The following errors were subsequently found:
(i)Drawings of $10,000 by cheque and $5,000 worth of goods in December 2010 had both been omitted from the books.
(ii)A payment of $11,200 by cheque to settle the account of a trade creditor, Paul Ho, had been posted to Paul Hung’s account as $11,020.
(iii)Rates of $7,600 paid in October 2010 were entered in the cash book, but no entry had been made in the rates account.
(iv)The total of the purchases day book had been entered in the purchases account as $38,838 instead of the correct figure of $38,388.
(v)Purchases of office stationery for resale amounting to $380 had been debited to the purchases account.
(vi)Discounts allowed for the month of November 2010 amounting to $1,600 had been posted to the credit side of the discounts received account.
(vii)An amount of $3,000 owed by Mr Yu had been written off as a bad debt in the previous year. Half of the amount was recovered on 30 October 2010. No entry had been made in the books.
(viii)A debit note from Smith Limited for $880 had been wrongly entered in the returns outwards journal as $1,080 and correctly entered in Smith Limited’s account.
(ix)A second-hand motor vehicle was purchased for $10,000 on 1 December 2010. Two days later, it was sold for half the price because it was defective. The sale proceeds of the motor vehicle were only posted to the returns outwards journal. No other entries had been made.
(x)On 1 August 2010, a fire broke out at Tom’s warehouse and inventory costing $50,000 was destroyed. Although the insurance company paid $34,000 by cheque to settle the claim, no entry in respect of the compensation received had been made by the company as at 31 December 2010.
Required:
(a) Prepare journal entries in Tom Tong’s books, including narrations, to correct the above errors.
(17.5 marks)
(b) Calculate the revised net profit for the year ended 31 December 2010.(5.5 marks)
(Calculations to the nearest dollar)
Answer:
(a)
The JournalDate / Details / Dr / Cr
2010 / $ / $
Dec / 31 / (i)Drawings
Bank
Purchases
Correction of error: Omission of drawings by cheque and of goods. / 15,000 / 10,000
5,000 / 0.5
0.5
0.5
0.5
" / 31 / (ii)Paul Ho
Paul Hung
Suspense
Correction of error: Settlement of Paul Ho’s account wrongly posted to Paul Hung’s account. / 11,200 / 11,020
180 / 0.5
0.5
0.5
0.5
" / 31 / (iii)Rates
Suspense
Correction of error: Omission of entry in the rates account. / 7,600 / 7,600 / 0.5
0.5
0.5
" / 31 / (iv)Suspense ($38,838 – $38,388)
Purchases
Correction of error: Overstated purchases posted from the purchases day book. / 450 / 450 / 0.5
0.5
0.5
" / 31 / (v)No journal entry is required. / 0.5
" / 31 / (vi)Discounts allowed
Discounts received
Suspense
Correction of error: Incorrect posting of discounts allowed to the discounts received account. / 1,600
1,600 / 3,200 / 0.5
0.5
0.5
0.5
" / 31 / (vii)Bank
Bad debts recovered ($3000 )
Correction of error: Omission of bad debts recovered from Mr Yu. / 1,500 / 1,500 / 0.5
0.5
0.5
" / 31 / (viii)Returns inwards
Returns outwards
Suspense
Correction of error: Returns inwards incorrectly entered in the returns outwards account with an incorrect figure. / 880
1,080 / 1,960 / 0.5
0.5
0.5
0.5
" / 31 / (ix)Bank
Profit and loss — Loss on disposal
Motor vehicles
Returns outwards
Suspense
Correction of error: Sale of a motor vehicle at half of the purchase price with sale proceeds posted to the returns outwards account. / 5,000
5,000
5,000 / 10,000
5,000 / 0.5
0.5
0.5
0.5
0.5
0.5
" / 31 / (x)Bank
Profit and loss — Insurance compensation
Correction of error: Omission of compensation from the insurance company for inventory lost in a fire. / 34,000 / 34,000 / 0.5
0.5
0.5
(b)
Calculation of Revised Net Profit for the year ended 31 December 2010$ / $
Draft net profit / 88,888 / 0.5
AddDrawings of goods omitted / (i) / 5,000 / 0.5
Purchases overstated ($38,838 – $38,388) / (iv) / 450 / 0.5
Bad debts recovered omitted / (vii) / 1,500 / 0.5
Insurance compensation omitted / (x) / 34,000 / 40,950 / 0.5
129,838
LessRates omitted / (iii) / 7,600 / 0.5
Discounts allowed recorded as discounts received ($1,600 2) / (vi) / 3,200 / 0.5
Returns inwards recorded as returns outwards ($1,080 + $880) / (viii) / 1,960 / 0.5
Loss on disposal of a motor vehicle / (ix) / 5,000 / 0.5
Disposal of a motor vehicle recorded as returns outwards / (ix) / 5,000 / (22,760) / 0.5
Revised net profit / 107,078 / 0.5
QUESTION 2
William Lau is a sole trader. His junior accounts clerk prepared the draft balance sheet below for him:
William LauBalance Sheet as at 31 December 2011
$ / $ / $
Non-current assets / Cost / Accumulated
depreciation / Net book
value
Machinery / 87,000 / 26,700 / 60,300
Inventory / 29,600 / — / 29,600
Lorries / 125,600 / 59,800 / 65,800
242,200 / 86,500 / 155,700
Current assets
Bank overdraft / (25,000)
Accounts receivable / 35,500
Prepayments / 2,000
12,500
LessCurrent liabilities
Loan from John Chan (repayable in 2013) / 57,000
Suspense / 4,500
Accruals / 4,400
Accounts payable / 43,200 / (109,100)
Net current assets / (96,600 / )
59,100
Financed by:
Capital
Balance as at 1 January 2011 / 32,400
AddNet profit for the year / 26,700
59,100
Subsequently, the accountant found the following errors:
(i)A purchase invoice for $500 was correctly entered in the purchases journal, but was debited to the trade creditor’s account as $5,000.
(ii)Machinery costing $21,000 was sold for $8,000 by cheque. The machinery had an accumulated depreciation of $10,000. This transaction had not been recorded.
(iii)The inventory as at 31 December 2011 was undercast by $2,700.
(iv)William took cash amounting to $1,000 for his holiday expenses. The accounts clerk recorded only the cash withdrawn. No other entry was made.
(v)In November 2011, the business bought goods on credit from Y Y Ltd for $2,560. Y Y Ltd also owed the business $3,000. These transactions were correctly recorded in the accounts. The two accounts of
Y Y Ltd were to be settled by a contra entry on 31 December 2011.
(vi)A trade debtor, Alan Au, was declared bankrupt during the year. The business immediately wrote off his debts of $1,920. However, in November 2011, Alan repaid his debts by cheque. The accounts clerk did not make any entry for the repayment in the books.
(vii)Goods costing $5,000 were stolen. As compensation, the insurance company paid for half of the inventory lost by cheque. No entry was made for the compensation received.
(viii)An electricity bill for $500 was received but was not paid until February 2012. No entry in respect of the bill was made in the books at the year end.
Required:
Prepare the following:
(a)Journal entries to correct the above errors (narrations are not required)(10 marks)
(b)Suspense account(1.5 marks)
(c)Statement to calculate the revised net profit(3.5 marks)
(d)Revised balance sheet (in vertical form)(9 marks)
Answer:
(a)
The JournalDetails / Dr / Cr
$ / $
(i) / Suspense / 5,500 / 0.5
Accounts payable ($500 + $5,000) / 5,500 / 0.5
(ii) / Bank / 8,000 / 0.5
Accumulated depreciation: Machinery / 10,000 / 0.5
Profit and loss — Loss on disposal / 3,000 / 0.5
Machinery / 21,000 / 0.5
(iii) / Inventory / 2,700 / 0.5
Profit and loss — Closing inventory / 2,700 / 0.5
(iv) / Drawings / 1,000 / 0.5
Suspense / 1,000 / 0.5
(v) / Y Y Ltd (accounts payable) / 2,560 / 0.5
Y Y Ltd (accounts receivable) / 2,560 / 0.5
(vi) / Alan Au / 1,920 / 0.5
Bad debts / 1,920 / 0.5
Bank / 1,920 / 0.5
Alan Au / 1,920 / 0.5
(vii) / Bank / 2,500 / 0.5
Profit and loss — Insurance compensation / 2,500 / 0.5
(viii) / Electricity / 500 / 0.5
Accruals / 500 / 0.5
(b)
Suspense
2011 / $ / 2011 / $Dec / 31 / Accounts payable(i) / 5,500 / Dec / 31 / Balance b/f / 4,500 / 0.50.5
" / 31 / Drawings(iv) / 1,000 / 0.5
5,500 / 5,500
(c)
Statement of Revised Net Profit for the year ended 31 December 2011$ / $
Draft net profit / 26,700 / 0.5
Add / Inventory undercast / (iii) / 2,700 / 0.5
Bad debts recovered / (vi) / 1,920 / 0.5
Insurance compensation / (vii) / 2,500 / 7,120 / 0.5
33,820
Less / Loss on disposal of machinery / (ii) / 3,000 / 0.5
Electricity accrued / (viii) / 500 / (3,500 / ) 0.5
Revised net profit / 30,320 / 0.5
(d)
William LauBalance Sheet as at 31 December 2011
$ / $ / $
Non-current assets / Cost / Accumulated
depreciation / Net book value
Machinery / 66,000 / (W1) / 16,700 / (W2) / 49,300 / 0.5 each
Lorries / 125,600 / 59,800 / 65,800 / 0.5 each
191,600 / 76,500 / 115,100
Current assets
Inventory ($29,600 + $2,700) / 32,300 / 0.5
Accounts receivable ($35,500 $2,560) / 32,940 / 0.5
Prepayments / 2,000 / 0.5
67,240
LessCurrent liabilities
Accounts payable ($43,200 + $5,500 $2,560) / 46,140 / 0.5
Accruals ($4,400 + $500) / 4,900 / 0.5
Bank overdraft ($8,000 + $1,920 + $2,500 $25,000) / 12,580 / (63,620 / ) / 0.5
Net current assets / 3,620 / 0.5
118,720
LessNon-current liabilities
Loan from John Chan / (57,000 / )0.5
61,720 / 0.25
Financed by:
Capital
Balance as at 1 January 2011 / 32,400 / 0.5
AddNet profit for the year / 30,320 / 0.5
62,720
LessDrawings / (1,000 / )0.5
61,720 / 0.25
Workings:
(W1)$87,000 $21,000 = $66,000
(W2)$26,700 $10,000 = $16,700
QUESTION 3
The trial balance of Wang Tai Enterprise as at 31 December 2010 failed to agree and the difference was credited to a suspense account. The draft net profit for the year amounted to $206,740.
Subsequent checking of the records revealed the following:
(i)A debt of $1,100 owed by Hang Lung Ltd proved to be irrecoverable but no record was entered in the books. The existing allowance for doubtful accounts, $1,600, should have been adjusted to 3% of accounts receivable. Accounts receivable as at 31 December 2010 amounted to $76,400.
(ii)A van costing $156,000 was acquired on 1 October 2010 for business use. This amount was debited to the purchases account. The firm’s policy is to depreciate vans at 20% per annum on cost.
(iii)Salaries and wages were overcast by $1,740.
(iv)Carriage inwards of $560 was wrongly credited to the carriage outwards account.
(v)A piece of equipment costing $30,000 was sold during the year. However, the sale proceeds of $7,200 were credited to the sales account and no other entries were made. The net book value of the equipment was $8,140.
(vi)An electricity accrual of $4,750 was wrongly adjusted at the year end as a prepayment.
(vii)The closing inventory was undervalued by $750.
(viii)The firm sold goods with a list price of $9,100 to Formal Co with a 15% trade discount. It also granted a 7.5% cash discount to Formal Co for the early settlement of its debt. However, $9,100 was recorded in the books and no entry was made for the cash discount.
(ix)A credit purchase of $6,240 was correctly entered in the trade creditor’s account but was entered in the purchases account as $6,420.
(x)The returns outwards journal was overcast by $710.
Required:
(a)Prepare the necessary journal entries to correct the above errors. (Narrations are not required.)
(16.5 marks)
(b)Draw up the suspense account.(3 marks)
(c)Prepare a statement to correct the draft net profit for the year ended 31 December 2010.(8.5 marks)
(Calculations to the nearest dollar)
Answer:
(a)
The JournalDetails / Dr / Cr
$ / $
(i) / Bad debts / 1,100 / 0.5
Hang Lung Ltd / 1,100 / 0.5
Profit and loss / 659 / 0.5
Allowance for doubtful accounts [($76,400 – $1,100) 3% – $1,600] / 659 / 0.5
(ii) / Vans / 56,000 / 0.5
Purchases / 56,000 / 0.5
Depreciation: Vans / 7,800 / 0.5
Accumulated depreciation: Vans ($56,000 20% ) / 7,800 / 0.5
(iii) / Suspense / 1,740 / 0.5
Salaries and wages / 1,740 / 0.5
(iv) / Carriage inwards / 560 / 0.5
Carriage outwards / 560 / 0.5
Suspense / 1,120 / 0.5
(v) / Sales / 7,200 / 0.5
Equipment disposal / 7,200 / 0.5
Equipment disposal / 30,000 / 0.5
Equipment / 30,000 / 0.5
Accumulated depreciation: Equipment ($30,000 – $8,140) / 21,860 / 0.5
Equipment disposal / 21,860 / 0.5
Profit and loss — Loss on disposal / 940 / 0.5
Equipment disposal / 940 / 0.5
Or
Sales / 7,200 / 1
Accumulated depreciation: Equipment / 21,860 / 1
Profit and loss — Loss on disposal / 940 / 1
Equipment / 30,000 / 1
(vi) / Electricity / 9,500 / 0.5
Prepayments / 4,750 / 0.5
Accruals / 4,750 / 0.5
(vii) / Inventory / 750 / 0.5
Profit and loss — Closing inventory / 750 / 0.5
(viii) / Sales ($9,100 15%) / 1,365 / 0.5
Discounts allowed ($9,100 85% 7.5%) / 580 / 0.5
Formal Co / 1,945 / 0.5
(ix) / Suspense / 180 / 0.5
Purchases ($6,420 – $6,240) / 180 / 0.5
(x) / Returns outwards / 710 / 0.5
Suspense / 710 / 0.5
(b)
Suspense
$ / $Salaries and wages(iii) / 1,740 / Difference as per trial balance (balancing / 0.5
Purchases(ix) / 180 / figure) / 90 / 0.50.5
Carriage inwards(iv) / 560 / 0.5
Carriage outwards(iv) / 560 / 0.5
Returns outwards(x) / 710 / 0.5
1,920 / 1,920
(c)
Statement of Corrected Net Profit for the year ended 31 December 2010$ / $
Net profit as per draft accounts / 206,740 / 0.5
AddPurchases overstated(ii) / 156,000 / 0.5
Salaries and wages overcast(iii) / 1,740 / 0.5
Closing inventory undervalued(vii) / 750 / 0.5
Purchases overstated(ix) / 180 / 158,670 / 0.5
365,410
LessBad debts omitted(i) / 1,100 / 0.5
Allowance for doubtful accounts understated(i) / 659 / 0.5
Depreciation understated(ii) / 7,800 / 0.5
Carriage inwards understated(iv) / 560 / 0.5
Carriage outwards understated(iv) / 560 / 0.5
Sales overstated(v) / 7,200 / 0.5
Loss on disposal of equipment(v) / 940 / 0.5
Electricity understated(vi) / 9,500 / 0.5
Sales overstated(viii) / 1,365 / 0.5
Discounts allowed omitted(viii) / 580 / 0.5
Returns outwards overcast(x) / 710 / (30,974) / 0.5
Corrected net profit / 334,436 / 0.5
QUESTION 4
Paul Shum operates a business that sells aquarium equipment. The bookkeeper prepared a trial balance as at 31 March 2010:
Dr / Cr$ / $
Accounts payable / 155,214
Accounts receivable / 165,000
Office expenses / 31,218
Allowance for doubtful accounts, 1 April 2009 / 5,300
Bad debts / 9,900
Capital, 1 April 2009 / 1,686,017
Carriage inwards / 2,300
Bank / 430,500
Drawings / 24,000
Furniture and fittings, at cost / 891,000
Inventory, 1 April 2009 / 310,060
Office equipment, at cost / 810,000
Purchases / 603,500
Rent and rates / 165,000
Sales / 1,567,387
Returns inwards / 9,060
Selling and distribution expenses / 149,010
Wages and salaries / 289,000
Accumulated depreciation: Office equipment / 168,750
Furniture and fittings / 303,750
Suspense account / 3,130
3,889,548 / 3,889,548
Additional information:
(i)Inventory as at 3l March 2010 was valued at $253,233.
(ii)A bad debt of $1,300, which was written off in May 2009, was recovered. The cheque was received on 10 January 2010. No entry had yet been made in respect of this transaction.
(iii)The allowance for doubtful accounts was to be maintained at 5% of accounts receivable.
(iv)Depreciation was to be charged as follows:
Office equipment — 10% per annum on cost
Furniture and fittings — 20% per annum on net book value
(v)The following adjustments were to be made on 31 March 2010:
Accrued rent and rates$1,650
Accrued carriage inwards $125
Prepaid wages $1,290
(vi)Errors that caused the suspense account balance were as follows:
1A trade debtor’s balance of $2,200 had been entered twice in the accounts receivable ledger.
2Office expenses had been overcast by $800.
3Carriage inwards had been overcast by $30.
4Sales of $1,400 had been correctly entered in the sales account but had been entered in the trade debtor’s account as $1,500.
Required:
(a)Show the journal entries required to correct the above errors. (Narrations are not required.)(4 marks)
(b)Prepare a corrected trial balance as at 31 March 2010.(10 marks)
(c)Draw up an income statement for Paul Shum's business for the year ended 31 March 2010.(9 marks)
(d)Draw up a balance sheet as at the same date.(7 marks)
Answer:
(a)
The JournalDetails / Dr / Cr
$ / $
(i) / Suspense / 2,200 / 0.5
Accounts receivable / 2,200 / 0.5
(ii) / Suspense / 800 / 0.5
Office expenses / 800 / 0.5
(iii) / Suspense / 30 / 0.5
Carriage inwards / 30 / 0.5
(iv) / Suspense / 100 / 0.5
Accounts receivable / 100 / 0.5
(b)
Paul ShumCorrected Trial Balance as at 31 March 2010
Dr / Cr
$ / $
Accounts payable / 155,214 / 0.5
Accounts receivable ($165,000 – $2,200 – $100) / 162,700 / 0.5
Office expenses ($31,218 – $800) / 30,418 / 0.5
Allowance for doubtful accounts, 1 April 2009 / 5,300 / 0.5
Bad debts / 9,900 / 0.5
Capital, 1 April 2009 / 1,686,017 / 0.5
Carriage inwards ($2,300 – $30) / 2,270 / 0.5
Cash / 430,500 / 0.5
Drawings / 24,000 / 0.5
Furniture and fittings, at cost / 891,000 / 0.5
Inventory, 1 April 2009 / 310,060 / 0.5
Office equipment, at cost / 810,000 / 0.5
Purchases / 603,500 / 0.5
Rent and rates / 165,000 / 0.5
Sales / 1,567,387 / 0.5
Returns inwards / 9,060 / 0.5
Selling and distribution expenses / 149,010 / 0.5
Wages and salaries / 289,000 / 0.5
Accumulated depreciation:
Office equipment / 168,750 / 0.5
Furniture and fittings / 303,750 / 0.5
3,886,418 / 3,886,418
(c)
Paul ShumIncome Statement for the year ended 31 March 2010
$ / $ / $ / $
Opening inventory / 310,060 / Sales / 1,567,387 / 0.50.5
AddPurchases / 603,500 / LessReturns inwards / (9,060) / 1,558,327 / 0.50.5
Carriage Inwards
($2,270 + $125) / 2,395 / 605,895 / 0.5
915,955
LessClosing inventory / (253,233) / 0.5
Cost of goods sold / 662,722 / 0.5
Gross profit c/d / 895,605 / 0.5
1,558,327 / 1,558,327
Rent and rates ($165,000 + $1,650) / 166,650 / Gross profit b/d / 895,605 / 0.50.5
Wages and salaries ($289,000 $1,290) / 287,710 / 0.5
Office expenses / 30,418 / 0.5
Selling and distribution expenses / 149,010 / 0.5
Bad debts / 8,600 / 0.5
Depreciation:
Office equipment ($810,000 10%) / 81,000 / 0.5
Furniture and fittings ($587,250 20%) / 117,450 / 0.5
Increase in allowance for doubtful accounts
[($162,700 5%) $5,300)] / 2,835 / 0.5
Net profit / 51,932 / 0.5
895,605 / 895,605
Paul Shum
Balance Sheet as at 31 March 2010
$ / $ / $ / $ / $Non-current assets / Capital
Office equipment / 810,000 / Balance as at 1 April 2009 / 1,686,017 / 0.50.5
LessAccumulated depreciation / (249,750) / 560,250 / AddNet profit for the year / 51,932 / 0.50.5
1,737,949
Furniture and fittings / 891,000 / LessDrawings / (24,000) / 0.50.5
Less Accumulated depreciation / (421,200) / 469,800 / 1,713,949 / 0.5
1,030,050
Current assets / Current liabilities
Inventory / 253,233 / Accounts payable / 155,214 / 0.50.5
Accounts receivable / 162,700 / Accrued expenses / 0.5
LessAllowance for / ($1,650 + $125) / 1,775 / 156,989 / 0.5
doubtful accounts
($162,700 5%) / (8,135) / 154,565 / 0.5
Prepaid expenses / 1,290 / 0.5
Bank ($430,500 + $1,300) / 431,800 / 840,888 / 0.5
1,870,938 / 1,870,938
QUESTION 5
Johnny Chan, the accountant at Marco Computer Software Enterprise, prepared draft financial statements for the year ended 31 March 2011. After the trial balance had been prepared, he discovered that the trial balance did not agree and showed a debit shortfall of $55,200. The draft net loss for the year amounted to $6,530.
The following errors were found after investigation:
(i)Five new computers costing $50,000 had been recorded in the purchases account. These computers were used to replace the firm’s old computers. The computers were to be depreciated at a rate of 30% per annum on cost. A full year of depreciation was to be charged in the year of purchase.
(ii)A trade debtor settled his outstanding balance of $4,870 by cheque. However, it had been recorded in the cash book as $4,800.
(iii)Closing inventory had been under-counted by 500 units. Each unit cost $5.
(iv)Credit sales of $28,000 had been credited to both the sales account and a trade creditor’s account.
(v)The owner used the business bank account to issue a cheque to pay for his son’s annual insurance premium of $1,230. This amount had been debited to the insurance account and credited to the cash book.
(vi)An employee’s salary of $8,000, which was paid by cheque, had been omitted from the books.
(vii)A trade debtor had $8,750 that had been outstanding for six months. After investigation, this amount was cancelled as no job has been done for this trade debtor. No entry had been made for the job cancellation.
(viii)A discount allowed of $540 was debited to the returns inwards account.
(ix)Goods returned by a trade debtor amounting to $870 had been recorded in the returns inwards account only.
(x)Cash of $38,000 deposited into the bank had been recorded in the cash book as $38,800.
Required:
(a)Prepare the journal entries to correct the above errors. (Narrations are not required.)(11.5 marks)
(b)Prepare a statement to correct the draft net loss for the year ended 31 March 2011.(4 marks)
(c)Draw up the suspense account.(2.5 marks)
Answer:
(a)
The JournalDetails / Dr / Cr
$ / $
(i) / Computers / 50,000 / 0.5
Purchases / 50,000 / 0.5
Depreciation: Computers / 15,000 / 0.5
Accumulated depreciation: Computers ($50,000 30%) / 15,000 / 0.5
(ii) / Bank ($4,870 – $4,800) / 70 / 0.5
Suspense / 70 / 0.5
(iii) / Inventory (500 $5) / 2,500 / 0.5
Profit and loss — Closing inventory / 2,500 / 0.5
(iv) / Accounts payable / 28,000 / 0.5
Accounts receivable / 28,000 / 0.5
Suspense / 56,000 / 0.5
(v) / Drawings / 1,230 / 0.5
Insurance / 1,230 / 0.5
(vi) / Salary / 8,000 / 0.5
Bank / 8,000 / 0.5
(vii) / Sales / 8,750 / 0.5
Accounts receivable / 8,750 / 0.5
(viii) / Discounts allowed / 540 / 0.5
Returns inwards / 540 / 0.5
(ix) / Suspense / 870 / 0.5
Accounts receivable / 870 / 0.5
(x) / Cash ($38,800 – $38,000) / 800 / 0.5
Bank / 800 / 0.5
(b)
Statement of Corrected Net Loss for the year ended 31 March 2011$ / $
Net loss as per draft accounts / (6,530) / 0.5
AddPurchases overstated(i) / 50,000 / 0.5
Closing inventory under-counted(iii) / 2,500 / 0.5
Insurance overstated(v) / 1,230 / 53,730 / 0.5
47,200
LessDepreciation understated(i) / 15,000 / 0.5
Salary omitted(vi) / 8,000 / 0.5
Sales cancelled(vii) / 8,750 / (31,750) / 0.5
Corrected net profit / 15,450 / 0.5
(c)
Suspense
2011 / $ / 2011 / $Mar / 31 / Difference as per trial balance / 55,200 / Mar / 31 / Bank(ii) / 70 / 0.50.5
" / 31 / Accounts receivable (ix) / 870 / " / 31 / Accounts payable(iv) / 28,000 / 0.50.5
" / 31 / Accounts receivable(iv) / 28,000 / 0.5
56,070 / 56,070
QUESTION 6
Eddy Tsui, the owner of Runner Sport Enterprise, is reviewing the draft final accounts for May 2010. He discovered that the bank account had an overdraft balance, but the bank statement showed a positive balance as at 31 May 2010.
Required:
(a)Assume that the bank account in the ledger has been updated and that no errors were made in the entries. Explain to Eddy why the bank statement balance and the ledger bank account balance may not agree on the same day. (2 marks)
On 31 May 2010, the bank current account balance was $34,210 (overdraft) and the bank statement balance was $11,983. In addition, the trial balance did not agree. A suspense account was opened with a credit balance of $1,778. The net profit shown in the draft profit and loss account was $42,130.
Subsequently, you found the following:
(i)The payment to a trade creditor of $3,204 had been recorded in the trade creditor’s account correctly but two payment entries were made in the bank account.
(ii)A discount allowed was wrongly recorded in the cash book as $24 instead of $42.
(iii)Rent of $100,000 was paid by cheque on 30 May 2010. The cheque was presented for payment on
6 June 2010.
(iv)An insurance premium payment of $39,450 was made from the bank account through autopay on
27 May 2010. No entry was made in the books.
(v)Cheques from trade debtors were deposited into the bank in May but were not shown in the May 2010 bank statement. They were:
Jacky Sports House $6,843
Martin Outlet $2,333
(vi)A cheque for $8,230 received from Fortune Sports Shop was dishonoured. No record was made in the books.
(vii)A cheque for $67,300 was received from Sky Shop. Entries had been made in the books, but the cheque was dated 1 September 2010.
(viii)Petty cash of $5,000 was withdrawn from the bank. An entry was made in the petty cash book only.
(ix)Credit purchases of $64,240 from Mary Sports Co were debited to the purchases account and credited to the bank account.