How to prepare the Suspense Account

Correction of Errors

What you need

• An out-of-balance trial balance, with the debit and credit totals and the difference already worked out.
• A list of the errors that have been identified, together with their amounts.
• An understanding of the two groups of errors: those that affect the trial balance (one-sided) and those that do not (two-sided).
• A General Journal and the ledger for recording the correcting entries.

Step by step

1. 1

   Identify the imbalance and calculate the difference

   Check the trial balance of Perniagaan Setia. The debit column totals RM85,600 while the credit column totals RM85,900. The credit side exceeds the debit side by RM300 (RM85,900 - RM85,600). This RM300 difference is what goes into the Suspense Account.

2. 2

   Open the Suspense Account with the difference

   Enter the RM300 difference in the smaller column of the trial balance (the debit column) and label it 'Suspense Account'. The Suspense Account therefore has a debit balance of RM300. In the ledger, record Balance b/d RM300 on the debit side of the Suspense Account. The trial balance now agrees for the time being, at RM85,900 on each side.

3. 3

   Separate the errors that affect the trial balance

   Only one-sided errors (one account only, or unequal amounts) pass through the Suspense Account. Two-sided errors, such as errors of omission, commission, principle, complete reversal and compensating errors, do not. At Perniagaan Setia, two errors are found: (a) insurance of RM250 was credited in the Cash Account but not posted to the Insurance Account; (b) the Commission Received Account was overcast by RM50.

4. 4

   Journalise the correction of the first error

   The insurance of RM250 was never debited, so the debit must be added. In the General Journal: Debit Insurance Account RM250; Credit Suspense Account RM250. Narration: To correct the insurance payment not posted to the Insurance Account.

5. 5

   Journalise the correction of the second error

   The Commission Received Account was over-credited by RM50, so it must be reduced by debiting it. In the General Journal: Debit Commission Received Account RM50; Credit Suspense Account RM50. Narration: To correct the Commission Received Account, overcast by RM50.

6. 6

   Post the correcting entries to the ledger

   Post each entry to its own account and to the Suspense Account. The credit side of the Suspense Account now shows Insurance RM250 and Commission Received RM50. The Insurance Account is debited RM250 and the Commission Received Account is debited RM50.

7. 7

   Balance and clear the Suspense Account

   The debit side of the Suspense Account is Balance b/d RM300; the credit side is RM250 + RM50 = RM300. Both sides are equal, so the Suspense Account is closed and its balance becomes zero. This confirms that all errors affecting the trial balance have been corrected.

8. 8

   Check the corrected trial balance

   After all corrections, prepare the trial balance again; it should now balance without a Suspense Account. If a suspense balance still remains, there is another one-sided error not yet found and the investigation must continue.

Second example

Kedai Harmoni prepares a trial balance with a debit total of RM62,180 and a credit total of RM62,000. This time the debit exceeds the credit by RM180, so the RM180 difference is entered on the credit column of the trial balance and the Suspense Account has a credit balance of RM180. On investigation, it is found that Discount Received of RM90 was wrongly posted to the debit side of the Discount Received Account when it should have been on the credit side. A wrong-side error causes a difference of twice the amount, that is RM180 (2 x RM90). The correcting entry is: Debit Suspense Account RM180; Credit Discount Received Account RM180. When posted, the RM180 credit balance in the Suspense Account is fully cleared and its balance becomes zero.

This example shows two important points. First, when the debit exceeds the credit the Suspense Account has a credit balance; when the credit exceeds the debit as in the Perniagaan Setia example, the balance is a debit. Second, a wrong-side error in a single account must be corrected by twice the original amount, because the entry must cancel the wrong posting and record the correct posting at the same time.

Common mistakes

Related chapter: Correction of Errors →

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