Chapter 4 Solutions: Journal Proper, Rectification of Errors, and Adjusted Trial Balance
Answers to the Chapter 4 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, five clear points or a five-row table for 5 marks, and full working for numerical problems.
Group A: Very Short Answer Questions (1 Mark Each)
1. What is Journal Proper?
Journal Proper (the General or Miscellaneous Journal) is the book of original entry in which a business records the transactions that cannot be recorded in any of its subsidiary books, such as opening and closing entries, transfer entries, credit purchase or sale of fixed assets, adjustment entries and rectification entries.
2. Give two examples of Errors of Principle.
Two examples are: (1) wages paid for installing new machinery debited to Wages Account instead of Machinery Account, and (2) furniture purchased for the business debited to Purchase Account instead of Furniture Account.
3. When and why is a Suspense Account opened?
A Suspense Account is opened when the Trial Balance does not agree and the errors causing the difference cannot be located at once. The difference is placed in it temporarily so that the Trial Balance agrees and the final accounts can be prepared, and the account is closed as the one-sided errors are found and rectified.
4. Define Compensating Errors with an example.
Compensating Errors are two or more independent errors whose effects on the Debit and Credit totals cancel each other, so the Trial Balance still agrees. For example, the Purchase Book is undercast by Rs. 1,000 (the Debit side is short) and the Sales Book is also undercast by Rs. 1,000 (the Credit side is short).
5. Pass the adjustment entry for Prepaid Insurance of Rs. 4,500.
| Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
|---|---|---|---|
| Prepaid Insurance A/c ………………… Dr. To Insurance A/c (Being insurance paid in advance adjusted at the year end) | 4,500 | 4,500 |
Group B: Short Answer & Numerical Questions (5 Marks Each)
1. Explain the four types of accounting errors disclosed and not disclosed by the Trial Balance.
An accounting error is an unintentional clerical or conceptual mistake made while recording, posting, casting or balancing accounts. An error is disclosed by the Trial Balance when it affects only one side, so the Debit and Credit totals no longer agree. It is not disclosed when it affects both sides by the same amount, or neither side. The four types of errors are:
- Errors of Omission: A transaction is left out of the books wholly or partly. A complete omission, such as a credit sale to Sita of Rs. 5,000 not recorded at all, is not disclosed, because neither the debit nor the credit is recorded. A partial omission, such as a sale entered in the Sales Book but not posted to Sita’s Account, is disclosed, because only one side is missing.
- Errors of Principle: A transaction is recorded against a fundamental accounting principle, mainly by confusing capital and revenue items. The correct amount goes to the correct side, but to the wrong kind of account, so the error is not disclosed. Example: wages paid for installing new machinery debited to Wages Account instead of Machinery Account.
- Errors of Commission: These are clerical mistakes made while recording, posting or totaling. Posting to the wrong personal account with the correct amount and side, such as debiting Ram instead of Shyam, is not disclosed. Posting to the wrong side, posting a wrong amount to one account (Rs. 540 instead of Rs. 450), or undercasting or overcasting a subsidiary book is disclosed.
- Compensating Errors: Two or more independent errors cancel each other’s effect on the totals, so they are not disclosed. Example: the Purchase Book is undercast by Rs. 1,000 and the Sales Book is also undercast by Rs. 1,000.
In short, partial omissions, wrong-side postings, wrong amounts posted to one account and casting errors are disclosed, and after the Trial Balance they are rectified through a Suspense Account. Complete omissions, errors of principle, postings to the wrong personal account and compensating errors are not disclosed. They are found only by checking vouchers and books in detail, and are rectified between the accounts concerned without a Suspense Account.
2. Numerical Problem (Rectification of Errors): Rectify the following errors found in the books of Gorkha Traders after preparing the Trial Balance:
- (a) Wages paid for the installation of new machinery Rs. 12,000 was debited to Wages Account.
- (b) Sales Book was overcast by Rs. 5,000.
- (c) Goods returned by customer Sabina Rs. 3,000 were entered in the Purchase Return Book.
- (d) Cash paid to creditor Ramesh Rs. 7,600 was debited to his account as Rs. 6,700.
- (e) Furniture purchased on credit from National Woodworks for Rs. 20,000 was entered in the Purchase Book.
The errors are found after the Trial Balance has been prepared, so the one-sided errors (b) and (d) are rectified through a Suspense Account, and the two-sided errors (a), (c) and (e) are rectified between the accounts concerned.
In the Books of Gorkha Traders
Rectifying Journal Entries
| S.N. | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
|---|---|---|---|---|
| (a) | Machinery A/c ………………… Dr. To Wages A/c (Being wages paid for installation of new machinery wrongly debited to Wages A/c, now rectified) | 12,000 | 12,000 | |
| (b) | Sales A/c ………………… Dr. To Suspense A/c (Being overcasting of Sales Book by Rs. 5,000, now rectified) | 5,000 | 5,000 | |
| (c) | Sales Return A/c ………………… Dr. Purchase Return A/c ………………… Dr. To Sabina’s A/c (Being goods returned by Sabina wrongly entered in the Purchase Return Book, now rectified) | 3,000 3,000 | 6,000 | |
| (d) | Ramesh’s A/c ………………… Dr. To Suspense A/c (Being cash paid to Ramesh Rs. 7,600 wrongly debited to his account as Rs. 6,700, now rectified) | 900 | 900 | |
| (e) | Furniture A/c ………………… Dr. To Purchase A/c (Being credit purchase of furniture from National Woodworks wrongly entered in the Purchase Book, now rectified) | 20,000 | 20,000 |
Suspense Account
| Dr. | Particulars | Amount (Rs.) | Cr. | Particulars | Amount (Rs.) |
|---|---|---|---|---|---|
| To Difference in Trial Balance b/d | 5,900 | By Sales A/c (Error b) | 5,000 | ||
| By Ramesh’s A/c (Error d) | 900 | ||||
| Total | 5,900 | Total | 5,900 |
Assumed opening difference: The question does not state the difference in the Trial Balance, so it is worked out from the one-sided errors. The overcast Sales Book put Rs. 5,000 too much on the Credit side, and the short posting to Ramesh’s Account left the Debit side Rs. 900 short. The Trial Balance is therefore taken to have shown an excess Credit of 5,000 + 900 = 5,900, that is Rs. 5,900, placed to the Debit side of the Suspense Account. Once errors (b) and (d) are rectified, the Suspense Account closes with no balance.
Working notes:
- (a) Error of principle: Wages for installing new machinery are part of the cost of the machinery (capital expenditure), so Machinery Account is debited and the wrongly debited Wages Account is credited.
- (b) One-sided error: The overcast Sales Book put Rs. 5,000 too much on the Credit side of Sales Account only. Sales Account is debited to cancel the excess, and the Suspense Account takes the other side.
- (c) Two-sided error (wrong book): The wrong entry was Sabina’s A/c Dr. 3,000, To Purchase Return A/c 3,000. The correct entry is Sales Return A/c Dr. 3,000, To Sabina’s A/c 3,000. The rectifying entry cancels the wrong credit to Purchase Return Account, records the sales return, and credits Sabina with
3,000 + 3,000 = 6,000: Rs. 3,000 to cancel the wrong debit and Rs. 3,000 for the correct credit. Debits and credits were affected equally, so the Suspense Account is not used. - (d) One-sided error: The Cash Book correctly shows Rs. 7,600 paid, but Ramesh’s Account was debited with only Rs. 6,700. His account is debited with the shortfall
7,600 - 6,700 = 900, and the Suspense Account is credited. - (e) Error of principle: Furniture bought for use in the business is a fixed asset, not goods for resale, so Furniture Account is debited and the wrongly debited Purchase Account is credited. National Woodworks was correctly credited with Rs. 20,000 through the Purchase Book, so its account needs no correction.