Financial Accounting
Correction of Errors
What errors are NOT revealed by a trial balance?
Beginner
Errors of omission, commission, principle, original entry, complete reversal and compensating errors — because debits still equal credits.
Posting to the wrong customer (commission) still balances
Real-world example
Why a balanced trial balance is not proof the books are error-free.
What is a suspense account and how is it cleared?
Intermediate
A temporary holding account that makes the trial balance balance; it's cleared by journal entries once each error is found.
Dr Suspense 90 / Cr Sales 90 (to correct an omitted sale)
Real-world example
Used to finalise the trial balance while errors are still being traced.
Write a journal to correct a transaction posted to the wrong account.
Intermediate
Remove it from the wrong account and record it in the correct one via a correcting journal.
Rent posted to Repairs:
Dr Rent 800 Cr Repairs 800
Real-world example
Reclassifying a miscoded expense so the P&L lines are accurate.
How can errors affect reported profit?
Advanced
Errors touching income or expense accounts misstate profit; correcting them adjusts profit up or down, while balance-sheet-only errors don't change profit.
Omitted expense understates costs -> overstates profit until corrected
Real-world example
Restating prior-year profit after finding a material error.
Give an example of an error of principle.
Beginner
Recording a transaction in the wrong class of account, such as treating a capital purchase as a revenue expense.
Buying a machine posted to Repairs Expense instead of Fixed Assets
Real-world example
It wrongly reduces profit and understates assets until corrected.