Correction of Errors — full notes
Paper No. 1: Financial Accounting · Correction of Errors and Incomplete Records - Errors
Correction of Errors
1. Two categories of error
Errors that do not affect the trial balance - both sides still add up, but something is still wrong:
| Error type | What happens |
|---|---|
| Omission | A transaction is left out entirely - both debit and credit missing |
| Commission | Posted to the wrong account, but the right type of account |
| Principle | Posted to the wrong type of account entirely |
| Original entry | The wrong amount used on both sides |
| Complete reversal | Debit and credit swapped |
| Compensating | Two unrelated errors that happen to cancel out |
Errors that do affect the trial balance - it will not balance until found:
- A one-sided entry - only the debit or only the credit was posted
- Different amounts posted to each side (a transposition)
- A casting error in the trial balance itself
2. The suspense account
When a trial balance does not balance, the difference is temporarily parked in a suspense account so the trial balance can still be used while the actual error is tracked down. Once found, a journal entry both corrects the real error and clears the suspense account to zero.
3. Worked example - one-sided entry
A trial balance shows debits of KES 850,000 and credits of KES 847,200 - a difference of KES 2,800, debits higher.
Step 1: Open a suspense account with a credit balance of KES 2,800.
Step 2: Investigation finds a KES 2,800 general expenses payment was correctly debited to General Expenses, but the credit to Cash was never posted.
Step 3 - correcting journal entry:
Debit Suspense account 2,800
Credit Cash 2,800
This clears the suspense account and completes the entry that should have been made originally.
4. Worked example - an error that does not touch the trial balance
KES 15,000 spent repairing equipment was debited to the Equipment account instead of Repairs Expense. Both sides of the original entry balanced - a debit was made, just to the wrong account - so the trial balance shows nothing wrong.
Correcting journal entry:
Debit Repairs expense 15,000
Credit Equipment 15,000
No suspense account needed.