Level: HOTS (KBAT)
HOTS (KBAT) Worked Examples: Correction of Errors
Six KBAT worked examples for Chapter 9 Correction of Errors: classifying errors, General Journal corrections, the Corrected Trial Balance and the effect on net profit and the Financial Statements.
One-hour paid trial · Same-day reply · from RM50/hr
Example 1: Identify & Correct: Three Errors
Question
Solution plan
None of the three errors affects the balancing of the Trial Balance (Errors Not Affecting the Trial Balance). (1) Error of omission: record the whole transaction, i.e. Dr Debtor, Cr Sales. (2) Error of commission (right type of account, wrong individual): transfer the amount with Dr Kedai Borong Jaya, Cr Kedai Borong Raya. (3) Error of principle (an asset recorded as an expense): Dr Office Equipment, Cr Purchases. Total debits must equal total credits.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Debtor (Puan Salmah) | 850 | |
| Sales | 850 | |
| (Omitted credit sale, error of omission) | ||
| Kedai Borong Jaya (Creditor) | 1,200 | |
| Kedai Borong Raya | 1,200 | |
| (Payment recorded in wrong account, error of commission) | ||
| Office Equipment | 2,000 | |
| Purchases | 2,000 | |
| (Asset recorded as purchases, error of principle) | ||
| Total | 4,050 | 4,050 |
Answer
Error 1 is an error of omission, Error 2 an error of commission, and Error 3 an error of principle. All three are Errors Not Affecting the Trial Balance. The General Journal balances with total debit RM4,050 and total credit RM4,050.
Where marks are usually lost
Example 2: Error of Principle & Effect on Profit
Question
Solution plan
(1) Error of principle: an expense wrongly recorded as an asset. Correction: Dr Machine Repairs Expense RM1,500, Cr Machinery RM1,500. This increases expenses by RM1,500 → profit falls by RM1,500. (2) Error of original entry: both accounts are overstated by RM360 (840−480). Correction: Dr Cash RM360, Cr Utilities Expense RM360. Expenses fall by RM360 → profit rises by RM360. Net effect = −1,500 + 360 = profit decreases by RM1,140.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Machine Repairs Expense | 1,500 | |
| Machinery | 1,500 | |
| (Expense wrongly recorded as an asset, error of principle) | ||
| Cash | 360 | |
| Utilities Expense | 360 | |
| (Overstatement of RM360 corrected, error of original entry) | ||
| Total | 1,860 | 1,860 |
| Error | Type | Effect | Profit Adjustment (RM) |
|---|---|---|---|
| Machine repairs to Machinery account | Principle | Profit overstated | -1,500 |
| Utilities overstated by RM360 | Original entry | Profit understated | 360 |
| Net effect on profit | -1,140 |
Answer
Error 1 is an error of principle and Error 2 an error of original entry. The General Journal balances at RM1,860. The net effect is that the draft net profit decreases by RM1,140 after correction.
Where marks are usually lost
Example 3: Reversal of Entries: The Double-Amount Logic
Question
Solution plan
(1) Reversal of entries: the reversed original entry must be cancelled (RM640) AND the correct entry recorded (RM640), so the correction amount = 2 × RM640 = RM1,280. The correct entry is Dr Cash, Cr Encik Rosli, so the correction is Dr Cash RM1,280, Cr Encik Rosli RM1,280. (2) Error of original entry: both accounts are understated by RM81 (990−909). Correct in the original direction: Dr Purchases RM81, Cr Pembekal Wira RM81.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Cash | 1,280 | |
| Encik Rosli (Debtor) | 1,280 | |
| (Cancel reversed entry RM640 + record correct RM640, reversal of entries) | ||
| Purchases | 81 | |
| Pembekal Wira (Creditor) | 81 | |
| (Purchases understated by RM81, error of original entry) | ||
| Total | 1,361 | 1,361 |
Answer
The correction for the reversal is Dr Cash RM1,280 and Cr Encik Rosli RM1,280 (twice the original amount). The correction for the original-entry error is Dr Purchases RM81 and Cr Pembekal Wira RM81. The General Journal balances at RM1,361.
Where marks are usually lost
Example 4: Compensating Errors & Corrected Trial Balance
Question
Solution plan
These are compensating errors: one on the debit side (Rent Expense overcast RM200) and one on the credit side (Sales overcast RM200) that cancel each other, so the Trial Balance still balances. Correct by reducing both accounts: Dr Sales RM200 (reduce sales), Cr Rent Expense RM200 (reduce expense). Then adjust Rent Expense to RM4,000 and Sales to RM50,000 in the Corrected Trial Balance.
| Account | Debit (RM) | Credit (RM) |
|---|---|---|
| Purchases | 30,000 | |
| Opening stock | 6,000 | |
| Rent Expense | 4,200 | |
| Cash | 5,000 | |
| Debtors | 8,000 | |
| Vehicle | 20,000 | |
| Sales | 50,200 | |
| Capital | 16,000 | |
| Creditors | 7,000 | |
| Total | 73,200 | 73,200 |
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Sales | 200 | |
| Rent Expense | 200 | |
| (Correcting two compensating errors of RM200) | ||
| Total | 200 | 200 |
| Account | Debit (RM) | Credit (RM) |
|---|---|---|
| Purchases | 30,000 | |
| Opening stock | 6,000 | |
| Rent Expense | 4,000 | |
| Cash | 5,000 | |
| Debtors | 8,000 | |
| Vehicle | 20,000 | |
| Sales | 50,000 | |
| Capital | 16,000 | |
| Creditors | 7,000 | |
| Total | 73,000 | 73,000 |
Answer
The correction is Dr Sales RM200, Cr Rent Expense RM200. After correction, Rent Expense becomes RM4,000 and Sales RM50,000. The Corrected Trial Balance balances at RM73,000 on both sides.
Where marks are usually lost
Example 5: Multiple Errors → Full Corrected Trial Balance
Question
Solution plan
(1) Omission: Dr Sekolah Harapan RM1,500, Cr Sales RM1,500 → Debtor 6,500; Sales 56,500. (2) Principle: Dr Fittings RM800, Cr Purchases RM800 → Purchases 39,200; Fittings 15,800. (3) Reversal: cancel + correct = 2 × RM600 = RM1,200 → Dr Syarikat Buku Ilmu RM1,200, Cr Cash RM1,200 → Creditor 4,800; Cash 5,800. Then list all the corrected balances and check that the Corrected Trial Balance balances.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Sekolah Harapan (Debtor) | 1,500 | |
| Sales | 1,500 | |
| (Omitted credit sale, error of omission) | ||
| Fittings | 800 | |
| Purchases | 800 | |
| (Asset recorded as purchases, error of principle) | ||
| Syarikat Buku Ilmu (Creditor) | 1,200 | |
| Cash | 1,200 | |
| (Cancel + correct RM600 payment, reversal of entries) | ||
| Total | 3,500 | 3,500 |
| Account | Debit (RM) | Credit (RM) |
|---|---|---|
| Purchases (40,000 − 800) | 39,200 | |
| General Expenses | 3,000 | |
| Carriage Inwards | 1,000 | |
| Cash (7,000 − 1,200) | 5,800 | |
| Debtor Sekolah Harapan (5,000 + 1,500) | 6,500 | |
| Fittings (15,000 + 800) | 15,800 | |
| Drawings | 2,000 | |
| Sales (55,000 + 1,500) | 56,500 | |
| Capital | 12,000 | |
| Creditor Syarikat Buku Ilmu (6,000 − 1,200) | 4,800 | |
| Total | 73,300 | 73,300 |
Answer
After correction: Purchases RM39,200, Cash RM5,800, Debtor RM6,500, Fittings RM15,800, Sales RM56,500 and Creditor RM4,800. The General Journal balances at RM3,500 and the Corrected Trial Balance balances at RM73,300 on both sides.
Where marks are usually lost
Example 6: Effect on Financial Statements & Adjusted Net Profit
Question
Solution plan
Evaluate each error by its effect on profit. (1) Principle: RM700 expense left out of the Income Statement → profit overstated → deduct 700. (2) Discount received (income) omitted → profit understated → add 250. (3) Sales understated by RM1,800 (2,000−200) → profit understated → add 1,800. (4) Error of commission between two debtors → no effect on profit. (5) Opening stock overstated RM1,000 → cost of sales overstated → profit understated → add 1,000. If error (5) was not corrected in the prior year, the current year's profit is affected. Adjusted profit = 18,000 − 700 + 250 + 1,800 + 1,000.
| Error | Type | Effect on Draft Profit | Adjustment (RM) |
|---|---|---|---|
| Rack repairs to Fittings | Principle | Overstated | -700 |
| Discount received omitted | Omission | Understated | 250 |
| Sales RM2,000 recorded as RM200 | Original entry | Understated | 1,800 |
| Receipt in wrong debtor account | Commission | No effect | 0 |
| Opening stock overstated (prior year) | Prior year | Understated | 1,000 |
| Item | RM |
|---|---|
| Net profit (draft) | 18,000 |
| Less: | |
| Rack repairs expense (error of principle) | -700 |
| Add: | |
| Discount received omitted | 250 |
| Sales understated | 1,800 |
| Opening stock overstated (cost of sales overstated) | 1,000 |
| Adjusted net profit | 20,350 |
Answer
Error 4 (commission) has no effect on profit. After all adjustments, the adjusted net profit of Kedai Kasut Indah is RM20,350 (18,000 − 700 + 250 + 1,800 + 1,000). If the opening-stock error had not been corrected in the prior year, the current year's profit would remain understated by RM1,000.
Where marks are usually lost
Need help with Correction of Errors?
One-hour paid trial · Same-day reply · from RM50/hr
Book a Trial Class