Paper 2 Answering Technique
Paper 2 Answering Technique: Correction of Errors
A guide to answering Paper 2 structured questions on Correction of Errors: identifying the error type, preparing the General Journal and ledger, the Adjusted Trial Balance, and stating the effect on the Financial Statements.
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Identify and classify the error first
- Read the question and decide whether it is a Kesilapan Ketara (obvious, visible in the records) or a Kesilapan Tidak Ketara (hidden, found only after the Trial Balance is prepared).
- For a Kesilapan Tidak Ketara, classify it into one of six types: omission, commission, principle, amount (original entry), complete reversal, and compensating.
- Ask three quick questions: How many accounts are involved? Is the debit amount equal to the credit? Is the account type correct? The answers pin down the error type.
- Underline the key words in the question: account name, amount, and direction (debit or credit) so you do not slip when writing the correction.
Method for correcting Kesilapan Ketara
- A Kesilapan Ketara is an error plainly visible in the books, for example a mis-written figure, a mis-spelt name, or an entry placed in an obviously wrong column.
- Correct it by the cancellation method: strike the wrong entry with one neat line, write the correct entry above it, and initial beside it to authorise the change.
- Never erase, scribble over, or use correction fluid, because that undermines the reliability of the accounting records.
- A Kesilapan Ketara needs no General Journal entry because it is corrected directly on the faulty record; reserve the General Journal for Kesilapan Tidak Ketara.
Analyse the wrong entry against the correct entry
- Before writing the General Journal, do a two-column analysis: what was recorded (wrong) and what should have been recorded (correct); the difference is the correcting entry.
- Error of commission: correct amount but posted to the wrong account of the same class; move the amount from the wrong account to the correct account.
- Error of principle: correct amount posted to the wrong type of account, e.g. an asset recorded as an expense; this affects both profit and asset value.
- A complete reversal needs a doubled amount: one to cancel the reversed entry and one to record the correct entry.
- Compensating errors: two separate errors whose effects cancel each other in the Trial Balance; correct both in one entry.
Preparing the correcting General Journal
- Use the full General Journal format: Date, Particulars, Folio, Debit and Credit columns; the debit item is written to the left and the credit item is indented.
- Follow each entry with a short narration explaining the correction, since the narration carries method marks even if the amount is wrong.
- For a full omission, record the original transaction for the first time with both its debit and credit entries.
- Make sure total debit equals total credit in each correcting entry before moving to the next part.
Post to the ledger and prepare the Adjusted Trial Balance
- Post each General Journal entry to the relevant ledger accounts and update the balance of every account affected.
- If the question provides a Suspense Account (Akaun Tergantung) because the Trial Balance did not agree, put the one-sided corrections through it.
- The Suspense Account must reach a nil balance and be closed once all one-sided errors are corrected; any remaining balance shows the corrections are incomplete.
- Prepare the Adjusted Trial Balance using the new balances and confirm that total debit equals total credit.
Effect on the Financial Statements, profit/loss and timing
- State whether an item affects the Income Statement (profit), the Statement of Financial Position, or both, and the direction: understated or overstated.
- For example, an error of principle recording an asset as an expense makes expenses overstated, profit understated, and assets understated.
- If a prior-year error was not corrected, that year's profit was misstated and the current year's opening capital is affected too, so the correction must be adjusted.
- Prepare the adjusted Financial Statements after taking all corrections to the related accounts into account.
- Manage time according to the number of corrections; use precise account names (Purchases, Sales, Furniture) and check the balancing before moving on.
| Type of Error | Meaning | Example and correcting entry |
|---|---|---|
| Omission | A whole transaction is not recorded in any book at all. | Sales of RM300 omitted: Dr Debtor 300, Cr Sales 300. |
| Commission | Correct amount posted to the wrong account of the same class. | RM150 from Aminah credited to Salmah's account: Dr Salmah 150, Cr Aminah 150. |
| Principle | Correct amount posted to the wrong type of account (asset vs expense). | Furniture RM800 recorded in Purchases: Dr Furniture 800, Cr Purchases 800. |
| Amount (original entry) | Wrong amount copied from the source document into both accounts. | Sales RM540 recorded as RM450; record the difference: Dr Debtor 90, Cr Sales 90. |
| Complete reversal | Debit and credit are swapped; a doubled amount is needed to correct it. | Cash RM200 received recorded as Dr Debtor, Cr Cash: Dr Cash 400, Cr Debtor 400. |
| Compensating | Two separate errors whose effects cancel each other out. | Purchases overstated RM100 and Sales overstated RM100: Dr Sales 100, Cr Purchases 100. |
Because the debit and credit amounts stay equal, these six errors do not upset the balancing of the Trial Balance.
| Particulars | Debit | Credit |
|---|---|---|
| Furniture | 800 | |
| Purchases | 800 | |
| (Furniture purchase wrongly recorded in the Purchases account, now corrected) | ||
| Total | 800 | 800 |
The narration in brackets carries method marks; ensure total debit equals total credit.
When must I use a Suspense Account (Akaun Tergantung)?
Only when the Trial Balance does not agree, i.e. the error affects one side only. For the six Kesilapan Tidak Ketara where debit and credit amounts are equal, the General Journal is enough without a Suspense Account.
Why does a complete reversal need a doubled amount?
Because the original entry was not omitted but recorded in reverse. One amount cancels the reversed entry and another records the correct entry, so the total is twice the original transaction.
How does a prior-year error affect the current year's profit?
If last year's profit was misstated and left uncorrected, this year's opening capital is also wrong. The correction must be adjusted so that the current year's profit and balances are reported accurately.
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