Verification of accounting records flashcards

Topic 4: Verification of accounting records

The four errors revealed by the trial balance

Addition (casting), partial omission (one side missing), transposition (in one entry only) and unequal posting.

The six errors not revealed by the trial balance

Commission, complete reversal, compensating, omission, original entry and principle.

Wages of £5,670 were posted to the wages account as £5,760; the cash book was correct. Error and effect?

Transposition. The debit side is £90 too large; 90 ÷ 9 = 10, the typical clue.

A cheque of £530 received from M Doyle was debited to M Doyle and credited to bank. Correction?

Complete reversal: Dr Bank £1,060, Cr M Doyle £1,060 (twice the amount: once to cancel, once to record correctly).

Trial balance debits £64,300, credits £63,850. Suspense balance?

£450 credit: enter the difference on the side with the smaller total.

Draft profit £30,000. Accrued wages £1,200 omitted; office equipment £450 debited to office expenses. Corrected profit?

30,000 − 1,200 + 450 = £29,250 (ignoring depreciation). Then accruals rise £1,200 and non-current assets rise £450.

Sales ledger control: debit b/d £12,400; credit sales £18,900; interest charged £160; receipts £15,300; discount allowed £410; returns £870; contra £500

Debits £31,460; credits £17,080. Closing debit balance £14,380.

Three items that never appear in a sales ledger control account

Cash sales, cash purchases and the provision for doubtful debts.

Cash book shows £2,100 favourable. Unpresented cheques £450; outstanding lodgement £300. Bank statement balance?

2,100 + 450 − 300 = £2,250 in favour. The updated cash book balance, not the bank statement balance, goes on the statement of financial position.

Effect on profit and the statement of financial position: a computer costing £1,200 debited to office expenses

Profit understated by £1,200; non-current assets understated by £1,200 (ignoring depreciation).

Main limitation of a bank reconciliation

It checks only the bank column. It misses, for example, a bank payment posted to the wrong expense account, or a cheque recorded at the wrong amount on both sides.

How can a credit balance arise in the sales ledger?

A customer overpays, or returns goods already paid for.