Suspence Account

Suspense account

A suspense account is a temporary ledger account opened and used to correct errors which can cause disagreement of the trial balance.

Since errors are discovered in the trial balance, to enable preparation of final accounts at the end of the accounting period, the difference is often transferred to a suspense account. This is done either by debiting or crediting.

Example 1

A trial balance was extracted from the books of V Baker, and it was found that the debit side exceeded the credit side by £40. This amount was entered in the suspense account. The following errors were later discovered and corrected:

1. Purchases were over-summed by £20.
2. An amount paid to B Simpkins was debited to the control account as £98 instead of £89.
3. Sales were under-summed by £11.

Required: Write up and rule off the suspense account as it would appear in Baker's ledger

Solution

Description	£
Purchases	20
Creditors	9
Sales	11
Balance c/d	20
	40
Balance b/d	40

Example 2

Your bookkeeper extracted a trial balance on 31 December 20X5 which failed to agree by £210, a shortage on the credit side of the trial balance. A suspense account was opened for the difference.

In January 20X6 the following errors made in 20X5 were found:

1. Sales day book had been undercast by £200.
2. Sales of £610 to T Vantuira had been debited in error to T Ventura's account.
3. Rent account had been undercast by £90.
4. Discounts Allowed account had been overcast by £100.
5. The sale of a computer at net book value had been credited in error to the Sales account £230.

You are required to:

1. Show the journal entries necessary to correct the errors.
2. Draw up the suspense account after the errors described have been corrected.
3. If the net profit had previously been calculated at £31,400 for the year ending 31 December 20X5, show the calculations of the corrected net profit

Solution

The Journal (narratives omitted)

		Dr	Cr
(i)	Suspense	200
	Sales		200
(ii)	T Vantuira	610
	T Ventura		610
(iii)	Rent	90
	Suspense		90
(iv)	Suspense	100
	Discounts allowed		100
(v)	Sales	230
	Computer disposals		230

Suspense Account

	£
Sales	200
Discounts allowed	100
Balance c/d	20
	320
Balance b/d	210
Rent	90
	300

Corrected Net Profit

	£
Net profit per financial statements	31,400
Add
- i Sales undercast	200
- iv Discounts overcast	100
	300
	31,700
Less
- iii Rent undercast	90
- v Reduction in sales	230
	320
Corrected net profit	31,380