Thanks to visit codestin.com
Credit goes to www.scribd.com

Scribd
Upload
27 views2 pages

CH 7 Exercise 1

The trial balance of Watsons Co. as of 31 March 20X6 had discrepancies leading to a suspense account entry. Several errors were identified, including misstatements in trade receivables, machinery returns, petty cash, bank balances, and discounts. Correcting these errors resulted in a revised net profit of $17,530 after adjustments.

Uploaded by

fuyunshen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
27 views2 pages

CH 7 Exercise 1

The trial balance of Watsons Co. as of 31 March 20X6 had discrepancies leading to a suspense account entry. Several errors were identified, including misstatements in trade receivables, machinery returns, petty cash, bank balances, and discounts. Correcting these errors resulted in a revised net profit of $17,530 after adjustments.

Uploaded by

fuyunshen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

Correction of Errors/P.

Exercise 1

The trial balance of Watsons Co. as at 31 March 20X6 failed to agree, and the amount of the
difference was entered in a suspense account. Final accounts were prepared, including the
following balance sheet:

Non-Current Assets
Current Assets
Suspense

Less: Current Liabilities


Working Capital

Capital
Add: Net Profit

Subsequently, the following errors were found:


(i) The balance of trade receivables was $2,600 in debit but this was carried down as $260.
(ii) Machinery of $300 returned to ABC Ltd. had been recorded in returns outwards account.
Provision for depreciation has already been made for the year.
(iii) A petty cash balance of $100 had been brought forward as $50
(iv) The bank balance of $500 had been brought forward as a credit balance.
(v) A payment of $210 to Miss Lee, a trade creditor, correctly entered in her personal account
had been credited to the bank account as $201.
(vi) Discounts allowed of $100 had been credited to discount received account.
(vii) The proprietor, Miss Lui, had withdrawn cash $30 for private use. No entry had been made.

Note: The company depreciated machinery at 10% on cost.

Required:
(a) Prepare the journal entries to correct the above errors. Narratives are not required.
(b) Show the entries in the suspense account.
(c) Calculated the correct net profit.
Correction of Errors/P.1

Answer 1
(a) Watson Co.
Journal
Dr. Cr.
$ $
(i) Trade Receivables ($2,600 - $260) 2,340
Suspense 2,340
(ii) Returns Outwards 300
Machinery 300
Provision for depreciation ($300 X 10%) 30
Profit and Loss 30
(iii) Petty Cash 50
Suspense 50
(iv) Bank ($500 X 2) 1,000
Suspense 1,000
(v) Suspense 9
Bank 9
(vi) Discount Allowed 100
Discount Received 100
Suspense 200
(vii) Drawings 30

(b)
Suspense
20X6 $ 20X6 $
Mar-31 Balance b/d 3,581 Mar-31 Trade Receivables (i) 2,340
Bank (v) 9 Petty Cash (iii) 50
Bank (iv) 1,000
Discount Allowed (vi) 100
Discount Received (vi) 100
3,590 3,590

(c)
Statement to Show the Revised Net Profit Calculation
$ $
Net profit before correction 18,000
Add: Depreciation overstated on machinery (ii) 30
18,030
Less: Returns Outwards overstated (ii) 300
Discount Allowed omitted (vi) 100
Discount Received omitted (vi) 100 500
Revised net profit 17,530

You might also like