ࡱ> hjg7 &bjbjUU 2b7|7|?l8  E$E&E&E&E&E&E&E$[F {HpJEJE"_E"""$E"$E""**;p= nWv ^$<p=uE0E:<6H BHp="Notes on Chapter 31 Suspense Account and the Correction of Errors Part II 31.5 Errors which do not affect profit calculation If errors affect only balance sheet items (assets, liabilities & capital), them the calculation of original profit will not be affected. Example 04 Assume there is $800 debit balance in the suspense account shown in the balance sheet. Net profit was calculated as $32,000. Subsequent checking revealed the following errors: $600 paid to a creditor, T. Mok, was correctly entered in the cash book but it was not entered anywhere else. The cash column in the cash book had been undercast by $200. The double entries to correct the errors are: The JournalDate Dr ($)Cr ($)(1)T. Moks account Suspense account600 600(2) Cash Suspense account200 200 We can see that for both errors (1) and (2), only items in the balance sheets will be affected. This means that neither the trading account nor the profit and loss account has been affected. The profit shown ($32,000) was correct. 31.6 Errors which affect profit calculation if errors affect any items in the trading and profit and loss account (e.g. revenue and expense items), the calculation of the original profit will be affected. If the errors affect any item in the trading account, then both gross profit and net profit will be affected. If the errors affect any item in the profit and loss account, then only net profit will be affected. Example 05 On 31 December 2005, assume K. Chan have the following errors were discovered at the end of the year. The draft net profit was $13,480. A credit sale of $680 to K. Cheung was completely omitted from the books. Rent was undercast by $200. The double entries to correct the errors are: The JournalDate 2005Dr ($)Cr ($)Dec. 31 (1)K. Cheung Sales680 680Dec. 31 (2)Rent Suspense account200 200 If sales of $680 was omitted from the books, the sales amount would be undercast by $680. The credit side of the trading account should have been $680 more. Similarly, rent expense was undercast by $200. Since rent is an item in the profit and loss account, net profit will be overcast by $200. K. Chan Statement of Corrected Net Profit For the year ended 31 Dec. 2005$Draft net profit13,480Add: sales undercast680$14,160Less: Rent undercast200Corrected net profit for the year13,960Example 03a Referring to Example 03 in the previous section, the corrected net profit for the year ended 31 December 2008 should be: Wing Cheung Co. Statement of Corrected Net Profit For the year ended 31 Dec. 2008$$Net profit as per draft account102,450Add: Electricity recorded twice (7)1,280103,730Less: Disposal of office equipment treated as sales (1)4,800 Free samples sent treated as sales (2)500 Discounts received wrongly credited to interest received account (4)18 Provision for bad debts wrongly recorded (5)5,180 Carriage inwards wrongly credited to returns inwards account (6)7,65018,148Corrected net profit for the year855,82 The JournalDate 2008Dr ($)Cr ($)Net Profit ($)Dec. 31 (1)Sales Debtors (in sales ledger)6,200 6,200Overstated ($6,200) Debtors (in general ledger) Office equipment disposal6,200 6,200 Office equipment disposal Office equipment12,000 12,000 Provision for depreciation office equipment Office equipment disposal ($12,000 x 20% x 3)7,200 7,200 Office equipment disposal ($12,000 - $7,200 - $6,200) Profit and loss account 1,400 1,400Understated ($1,400)Dec. 31 (2)Sales Debtor500 500Overstated ($500)Dec. 31 (3)Purchases Returns outwards1,130 1,130 N/ADec. 31 (4)Interest received Discounts received Suspense275 257 18Overstated ($18)Dec. 31 (5)Debtor Provision for bad debts5,180 5,180Overstated ($5,180) Bank Debtor5,180 5,180Dec. 31 (6)Returns inwards Carriage inwards Suspense3,780 3,870 7,650Overstated ($7,650)Dec. 31 (7)Suspense Electricity Bank2,560 1,280 1,280Understated ($1,280) SPCS Form Four Principles of Accounts Page  PAGE 2 D. 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