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QUESTION ONE Briefly explain the following types of errors: (i) Error of commission (2 marks) (ii) Error of principle (2 marks) (iii) Complete reversal of
QUESTION ONE
- Briefly explain the following types of errors:
(i) Error of commission (2 marks)
(ii) Error of principle (2 marks)
(iii) Complete reversal of entries (2 marks)
(iv) Compensating errors (2 marks)
- The trial balance of Amanda Ltd as at 30 April 2018 did not balance. On investigation, the following errors were discovered:
- A loan of Sh.2,000,000 from one of the directors has been correctly entered in the cashbook but posted to the wrong side of the loan account.
- The purchase of a motor vehicle on credit fro Sh.2,860,000 had been recorded by debiting the suppliers account and crediting the motor expenses account.
- A cheque for Sh.80,000 from Ogola, a customer to whom goods are regularly supplied on credit, was correctly entered in the cashbook but was posted to the credit of bad debts recovered account in the mistaken belief that it was a receipt from Agola, a customer whose debt had been written off three years earlier.
- In reconciling the companys cash book with the bank statement, it was found that bank charges of Sh.38,000 had not been entered in the companys records.
- The totals of the cash discount columns in the cashbook for the month of April 2018 had not been posted to the respective discount accounts.
The figures were:
| Sh. |
Discounts allowed | 184,000 |
Discounts received | 397,000 |
- The company had purchased some plant on 1 March 2017 for Sh.1,600,000. The payment was correctly entered in the cashbook but was debited to the plant repairs account. Depreciation on such plant is provided for at the rate of 20% per annum on cost.
Required:
(i) Journal entries with narrations to correct the above errors.
(ii) Suspense accounts showing the original difference
(15 MARKS)
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