Chapter 12 Flashcards
What is an error of omission?
A transaction has been completely missed out from the accounting records
What is an error of commission?
A transaction has been record in the wrong account but in the right financial statement (E.g motor expense recorded as stationery)
What is an error of principle?
A transaction has conceptually been recorded incorrectly (eg debited as an expense rather than an asset)
What is a compensating error?
Errors which are coincidentally equal and opposite to each other
What is a transposition error?
The correct double entry has been made but two digits in the amounts are record the wrong way round (eg £71 rather than £17)
How should you approach questions about errors?
Did do
Should do
To correct
Always assume that if one side of the double entry is not mentioned, it has been recorded correctly
What is a suspense account?
A temporary account which allows a transaction to be recorded in the accounting system, even though the ledger account for one side of the transaction is not yet confirmed. It must be cleared before FS are prepared.
How should you approach suspense account questions?
Did do
Should do
To correct
The ‘Did do’ will contain an entry to the suspense account. Part of the correction will be to reverse this suspense account entry.
What is the impact on profit when you Dr SFP and Cr SFP
No impact on profit
What is the impact on profit when you Dr P&L and Cr P&L
No impact on profit
What is the impact on profit when you Dr P&L and Cr SFP
Profit decreases
What is the impact on profit when you Dr SFP and Cr P&L
Profit Increases
