4. Recap: Analyzing and Recording Process Analyze each transaction and event form source documents Record relevant transactions and events in a journal Post journal information to ledger accounts Prepare and analyze the trial balance DISCOVER ERROR!!!
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11. CORRECTION OF ERRORS - Errors of Omission The journal entry is as follows: General Journal Particulars Dr (RM) Cr (RM) Actual: Rent 1,600 Cash 1,600 Error: Rent 0 Cash 0 Correction: Rent 1,600 Cash 1,600 Being correction of error – payment for rent omitted from books 1 st Step 2 nd Step 3 rd Step
12. CORRECTION OF ERRORS - Errors of Commission An entry has been posted to the wrong account of the same category. X EXAMPLE A sale of RM150 to Folin Brothers has been posted to Lin Associates. √ Correct entry: Dr Debtor-Folin Brother Cr Sales RM 150 Dr Sales Cr Debtor- Folin Brother RM 150 1 st Step 2nd Step 3rd Step Error: Dr Debtor- Lin Associates Cr Sales RM 150 Dr Sales Cr Debtor - Lin Associates RM 150 Correction: Dr Debtor- Folin Brother Cr Debtor- Lin Associates RM 150 Dr Debtor- Lin Associates Cr Debtor- Folin Brother RM 150
13. CORRECTION OF ERRORS - Errors of Commission The journal entry is as follows: √ X General Journal Particulars Dr (RM) Cr (RM) Actual: Folin Brother 150 Sales 150 Errors: Lin Associates 150 Sales 150 Correction: Folin Brother 150 Lin Associates 150 Being correction of error – Lin Associates wrongly debited 1 st Step 2 nd Step 3 rd Step
14. X √ CORRECTION OF ERRORS - Errors of Principle An entry is posted to an account of a different category e.g. an expense is recorded as an asset. EXAMPLE Repairs to vehicles amounting to RM 1,000 has been posted to Vehicles Account. Correct entry: Dr Repair expense Cr Cash/ Acct. payable RM 1,000 Dr Cash / Account payable Cr Repair RM 1,000 1 st Step 2nd Step 3rd Step Error: Dr Vehicle Account Cr Cash/ acct payable RM 1,000 Dr Cash/ account payable Cr Vehicle RM 1,000 Correction: Dr Repair expense Cr Vehicle RM 1,000 Dr Vehicle Cr Repair RM 1,000
15. CORRECTION OF ERRORS - Errors of Principle The journal entry is as follows: √ X General Journal Particulars Dr (RM) Cr (RM) Actual: Repair 1,000 Cash/Accounts payable 1,000 Errors: Vehicle 1,000 Cash/Accounts payable 1,000 Correction: Repair 1,000 Vehicle 1,000 Being correction of error – repairs to vehicles posted to Vehicles Account 1 st Step 2 nd Step 3 rd Step
16. CORRECTION OF ERRORS - Errors of Original Entry A wrong amount is recorded in a book of original entry or a document such as an invoice and subsequently posted to the ledger accounts EXAMPLE A purchase of RM665 from Paper Manufacturers Ltd has been entered in the Purchases Journal and posted to the ledger as RM656. Correct entry: Dr Purchases Cr Paper Mfg Ltd RM 665 Dr Paper Manufacturers Ltd Cr Purchases RM 665 1 st Step 2nd Step 3rd Step Error: Dr Purchases Cr Paper Mfg Ltd RM 656 Dr Paper Manufacturers Ltd Cr Purchases RM 656 Correction: Dr Purchases Cr Paper Mfg Ltd RM 9 Dr Paper Manufacturers Ltd Cr Repair RM 9
17. CORRECTION OF ERRORS - Errors of Original Entry The journal entry is as follows: General Journal Particulars Dr (RM) Cr (RM) Actual: Purchases 665 Paper Manufacturers Ltd 665 Errors: Purchases 656 Paper Manufacturers Ltd 656 Correction: Purchases 9 Paper Manufacturers Ltd 9 Being correction of error – purchases understated by RM 9 1 st Step 2 nd Step 3 rd Step
18. CORRECTION OF ERRORS - Compensating Errors EXAMPLE Rent revenue account is overcast by RM10, so as the Wages Account. . An error on the debit side is compensated by an error of equal amount on the credit side. Wages RM10 Rent revenue RM10 1 st Step 2nd Step 3rd Step Correction Dr Rent Revenue Account Cr Cash RM350 Dr Wages Account Cr Cash RM 600
19. CORRECTION OF ERRORS - Errors of Principle The journal entry is as follows: General Journal Particulars Dr (RM) Cr (RM) Actual: Errors: Correction: Rent revenue 10 Wages 10 Being correction of error – rent received and wages paid overstated by $10 each 1 st Step 2 nd Step 3 rd Step
20. X √ CORRECTION OF ERRORS - Complete Reversal of Entries When recording a transaction, the debit entry and the credit entry are reversed. EXAMPLE A payment of RM 700 to a creditor, Martin, was debited to the Cash account and credited to Martin’s Account. Correct entry: Dr Martin Cr Cash RM 700 Dr Cash Cr Martin RM 700 1 st Step 2nd Step 3rd Step Error: Dr Cash Cr Martin RM 700 Dr Martin Cr Cash RM 700 Correction: Dr Martin Cr Cash RM1,400 Dr Cash Cr Martin RM 1,400
21. CORRECTION OF ERRORS - Errors of Principle The journal entry is as follows: X X General Journal Particulars Dr (RM) Cr (RM) Actual: Martin 700 Cash 700 Errors: Cash 700 Martin 700 Correction: Martin 1400 Cash 1400 Being correction of error – payment to Martin debited to Cash Account and credited to Martin’s account 1 st Step 2 nd Step 3 rd Step
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29. Errors Affecting TB Agreement and their Correction To correct the error... Suspense Account RM80 Linda RM80 Dr Linda Cr Dr Suspense Account Cr Difference in books RM80
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