ICAEW AF · Chapter 7
Errors, suspense accounts and correcting journals MCQs with Answers
12 multiple-choice questions on Errors, suspense accounts and correcting journals for ICAEW AF Accounting Fundamentals. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Which of the following is an error of principle?
- A) A sales invoice was posted to the account of the wrong customer
- B) The rent account was debited with £1,520 instead of £1,250 while the bank was credited with £1,250
- C) A purchase invoice was not recorded in the books at all
- D) The cost of repairing a delivery van was debited to the motor vehicles cost account
Show answer & explanation
Answer: D) The cost of repairing a delivery van was debited to the motor vehicles cost account
An error of principle occurs when a transaction is recorded in the wrong class of account, such as treating revenue expenditure (a repair) as capital expenditure. Posting to the wrong customer is an error of commission, missing an invoice is an error of omission, and a mismatched debit and credit is a transposition error that affects the trial balance.
Question 2
A purchase invoice from Hartley Ltd was correctly recorded in the purchases day book but posted to the payables ledger account of Hart Ltd. What type of error is this?
- A) An error of original entry
- B) A compensating error
- C) An error of commission
- D) An error of principle
Show answer & explanation
Answer: C) An error of commission
An error of commission occurs when an entry is made in the correct type of account but in the wrong individual account. Both Hart Ltd and Hartley Ltd are supplier accounts, so the classification is right but the account is wrong. The trial balance still agrees because the debit and credit are equal.
Question 3
A trial balance has debit balances totalling £248,900 and credit balances totalling £251,370. A suspense account is opened to make the totals agree. What is the balance on the suspense account?
- A) £2,470 credit
- B) £2,470 debit
- C) £1,235 debit
- D) £500,270 debit
Show answer & explanation
Answer: B) £2,470 debit
The credit total exceeds the debit total by £251,370 - £248,900 = £2,470. To make the trial balance agree, a debit balance of £2,470 must be added to the debit side, so the suspense account has a debit balance of £2,470. It stays there until the underlying errors are found and corrected.
Question 4
An electricity bill of £370 was paid and debited to the rent account. What journal is needed to correct the error?
- A) Debit Electricity £370, Credit Suspense £370
- B) Debit Rent £370, Credit Electricity £370
- C) Debit Electricity £370, Credit Bank £370
- D) Debit Electricity £370, Credit Rent £370
Show answer & explanation
Answer: D) Debit Electricity £370, Credit Rent £370
The bank entry is correct, and the debit was made to the wrong expense account. To correct it, the rent account must be credited to remove the £370 and the electricity account debited to record the expense in the right place. The trial balance was not affected, so no suspense entry is needed.
Question 5
Cash sales of £5,630 were correctly entered in the cash book but credited to the revenue account as £5,360. What journal corrects this error?
- A) Debit Revenue £270, Credit Suspense £270
- B) Debit Cash £270, Credit Revenue £270
- C) Debit Suspense £270, Credit Revenue £270
- D) Debit Suspense £5,630, Credit Revenue £5,630
Show answer & explanation
Answer: C) Debit Suspense £270, Credit Revenue £270
Revenue was credited with £5,360 instead of £5,630, so it is understated by £270. Because the debit to cash was correct, the trial balance would not have agreed and the difference would have gone to suspense. The correction credits revenue with £270 and debits suspense with £270.
Question 6
A business opened a suspense account when its trial balance did not agree. The following errors were then found, and correcting them cleared the suspense account completely: 1. Rent paid of £1,200 was correctly recorded in the cash book but debited to the rent account as £2,100. 2. Sales returns of £480 were credited to the receivables control account but not entered in the sales returns account. 3. Interest received of £2,820 was debited to the bank account but omitted from the interest income account. What was the original balance on the suspense account?
- A) £4,200 credit
- B) £1,440 credit
- C) £3,240 credit
- D) £3,240 debit
Show answer & explanation
Answer: C) £3,240 credit
Corrections: (1) Credit rent £900, debit suspense £900. (2) Debit sales returns £480, credit suspense £480. (3) Credit interest income £2,820, debit suspense £2,820. Net entry to suspense = £900 - £480 + £2,820 = £3,240 debit. For this to clear the account, the original balance must have been £3,240 credit.
Question 7
A sole trader's draft profit for the year is £64,800. The following matters have not yet been reflected: 1. Closing inventory was understated by £2,300. 2. A machine costing £4,000, bought at the start of the year, was debited to the repairs account. Machinery is depreciated at 20% per year on cost, with a full year's charge in the year of purchase. 3. An electricity bill of £650 relating to the year has not been accrued. What is the revised profit for the year?
- A) £70,950
- B) £69,650
- C) £70,450
- D) £65,050
Show answer & explanation
Answer: B) £69,650
Increasing closing inventory reduces cost of sales, so profit rises by £2,300. Removing the machine from repairs adds back £4,000, but depreciation of 20% x £4,000 = £800 must be charged. The accrual reduces profit by £650. Revised profit = £64,800 + £2,300 + £4,000 - £800 - £650 = £69,650.
Question 8
Which of the following errors would require an entry to the suspense account when it is corrected?
- A) A payment of £310 to a supplier was debited to the bank account and credited to the supplier's account
- B) Stationery of £85 paid by cheque was credited to both the bank account and the stationery account
- C) Wages of £2,400 were debited to the drawings account
- D) A credit sale of £600 was omitted from the books entirely
Show answer & explanation
Answer: B) Stationery of £85 paid by cheque was credited to both the bank account and the stationery account
Only errors that cause the trial balance to disagree are corrected through suspense. Crediting both the bank and the stationery account produces two credits and no debit, so the trial balance would not balance. The other errors each have equal debits and credits, so they are corrected by a journal between the ledger accounts concerned without using suspense.
Question 9
A credit sales invoice for £1,240 was entered in the sales day book as £1,420 and posted from there. What is the effect of this error and how is it corrected?
- A) Receivables and revenue are both understated by £180; correct by Debit Receivables, Credit Revenue £180
- B) Receivables and revenue are both overstated by £180; correct by Debit Revenue, Credit Receivables £180
- C) Only revenue is overstated; correct by Debit Revenue, Credit Suspense £180
- D) The trial balance will not agree; correct by Debit Suspense, Credit Receivables £180
Show answer & explanation
Answer: B) Receivables and revenue are both overstated by £180; correct by Debit Revenue, Credit Receivables £180
This is an error of original entry: the wrong amount was recorded in the book of prime entry, so both sides of the double entry used £1,420. The trial balance still agrees, but receivables and revenue are both £180 too high (£1,420 - £1,240). The correction is to debit revenue and credit receivables with £180.
Question 10
An invoice for goods bought on credit for £950 was not recorded in the books at all. Which journal corrects this error?
- A) Debit Purchases £950, Credit Suspense £950
- B) Debit Purchases £950, Credit Trade payables £950
- C) Debit Purchases £950, Credit Bank £950
- D) Debit Trade payables £950, Credit Purchases £950
Show answer & explanation
Answer: B) Debit Purchases £950, Credit Trade payables £950
An error of omission means neither side of the transaction was recorded, so the trial balance still agrees. The correction simply records the original transaction: debit purchases to recognise the cost and credit trade payables to recognise the amount owed. Bank is not involved because the goods were bought on credit.
Question 11
A sole trader's personal home insurance of £1,500 was paid from the business bank account and debited to the business insurance expense account. What journal corrects this?
- A) Debit Capital £1,500, Credit Bank £1,500
- B) Debit Drawings £1,500, Credit Bank £1,500
- C) Debit Insurance expense £1,500, Credit Drawings £1,500
- D) Debit Drawings £1,500, Credit Insurance expense £1,500
Show answer & explanation
Answer: D) Debit Drawings £1,500, Credit Insurance expense £1,500
Payments of the owner's private expenses are drawings, not business expenses. The bank entry was correct, but the debit was made to the wrong account. The insurance expense must be credited to remove the £1,500 and drawings debited, which will reduce the owner's capital rather than the business's profit.
Question 12
During the current year, a company discovers a material error in the financial statements of the previous year. How does IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors require the error to be dealt with?
- A) Prospectively, by including the full correction in the current year's profit or loss
- B) Retrospectively, by restating the comparative amounts for the prior period presented
- C) By disclosing the error in the notes without changing any amounts
- D) By recording the correction directly in the revaluation surplus
Show answer & explanation
Answer: B) Retrospectively, by restating the comparative amounts for the prior period presented
IAS 8 requires material prior period errors to be corrected retrospectively in the first set of financial statements authorised after their discovery. Comparative amounts for the prior period are restated, and if the error occurred before that period, the opening balances of the earliest period presented are restated. The correction is not passed through current year profit or loss.