The following trial balance (all figures in £) was prepared for a sole trader:

Debit side: Purchases £30,000; Cash £5,000; Bank £3,000; Salaries expense £10,000; Suspense £2,000.
Credit side: Sales £30,000; Capital £15,000; Rent income £5,000.

It is later discovered that several errors have been made:
1. Sales of £2,000 were returned but not recorded.
2. Freight of £1,000 on purchases was omitted.
3. A cash receipt of £1,000 was omitted from Cash and incorrectly added to Bank.
4. A salary payment of £500 was recorded in Bank instead of Cash.

(a) Identify each error and show the correcting journal entry (showing the effect on the Suspense account where appropriate).
(b) After correcting the errors, state the revised balances of Cash, Bank and Suspense.
(c) Compute the corrected profit (including Rent income) for the period.

Question

The following trial balance (all figures in £) was prepared for a sole trader:

Debit side: Purchases £30,000; Cash £5,000; Bank £3,000; Salaries expense £10,000; Suspense £2,000.
Credit side: Sales £30,000; Capital £15,000; Rent income £5,000.

It is later discovered that several errors have been made:
1. Sales of £2,000 were returned but not recorded.
2. Freight of £1,000 on purchases was omitted.
3. A cash receipt of £1,000 was omitted from Cash and incorrectly added to Bank.
4. A salary payment of £500 was recorded in Bank instead of Cash.

(a) Identify each error and show the correcting journal entry (showing the effect on the Suspense account where appropriate).
(b) After correcting the errors, state the revised balances of Cash, Bank and Suspense.
(c) Compute the corrected profit (including Rent income) for the period.

Accepted Answer

Correcting entries: (1) Dr Sales £2,000 / Cr Suspense £2,000; (2) Dr Purchases £1,000 / Cr Cash £1,000; (3) Dr Cash £1,000 / Cr Bank £1,000; (4) Dr Cash £500 / Cr Bank £500. Revised balances - Cash £5,500; Bank £1,500; Suspense £0. Corrected profit (including rent) = -£8,000.

Gce Model Questions Vol1 2024 Financial Accounting Question 43

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