## Learning Outcomes

After reading this article, you will be able to explain the function of the journal in bookkeeping, prepare journal entries to correct accounting errors, and carry out transfers between accounts. You will know when to use a suspense account, identify errors in the trial balance, and understand how adjustments and transfers are correctly recorded using journals.

## ACCA Recording Financial Transactions (FA1) Syllabus

For ACCA Recording Financial Transactions (FA1), you are required to understand how errors are corrected and adjustments are made using journal entries. This includes:

- Explaining the use and format of the journal in accounting
- Preparing journal entries for routine and correcting transactions
- Identifying and correcting errors that are revealed or not revealed by the trial balance
- Using the journal to make transfers between accounts
- Understanding when a suspense account is necessary and how to clear it

## Test Your Knowledge

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, look more closely at that area during your revision._

1. A payment of wages was omitted from the accounts. What type of error is this, and how would you correct it?
2. Which of the following errors would be revealed by a trial balance not balancing?
   a) Transposing two figures in a sales invoice
   b) Omitting both sides of a transaction
   c) Entering a debit but missing the corresponding credit
   d) Posting to the wrong expense account
3. What is the purpose of a suspense account?
4. Briefly describe how to transfer an amount from the rent expense account to repairs expense using a journal entry.

## Introduction

The journal is a key part of the bookkeeping process, especially for recording adjustments that do not result from routine business transactions or for correcting errors. When mistakes are made, or when a figure needs to be moved from one account to another, the changes are made by journaling an entry. The use of journals ensures that such changes are properly documented and easily traceable.

You must be able to identify when a journal is needed, prepare the correct double entry to effect the desired correction or transfer, and recognise when a suspense account is required. Understanding these processes is essential for ensuring correct financial records and for extracting an accurate trial balance.

> **Key Term: journal**
> A chronological record of accounting entries used to document non-routine transactions, corrections, and transfers between accounts.
> **Key Term: suspense account**
> A temporary general ledger account used to record differences when total debits do not equal total credits in the trial balance, pending investigation and correction.
> **Key Term: correcting entry**
> A journal entry designed to amend mistakes in the accounting records.
> **Key Term: transfer**
> An accounting entry that moves an amount from one ledger account to another, generally to reclassify an expense or income correctly.

### THE JOURNAL IN ACCOUNTING

The journal provides a formal means of recording adjustments that are outside the usual flow of business transactions. This includes corrections of errors, transfers between accounts, and non-routine items such as accruals.

Journals ensure that every transaction remains traceable and the rationale for each correction or adjustment is clearly explained. In written or computerised accounting systems, each journal entry is often accompanied by a brief narrative explanation.

### Why Use a Journal?

- To record corrections where an error has been found in the ledger accounts
- To move (transfer) amounts that were entered to the wrong account
- To clear suspense accounts once errors have been found and fixed

Journals provide essential evidence for auditors and other users that adjustments have been properly authorised and explained.

### TYPES OF ERRORS AND HOW TO CORRECT THEM

Errors in accounting can arise for many reasons—misposting, omission, reversal of entries, or calculation mistakes. Not all errors will make the trial balance totals disagree, but some will. The process for correction depends on the error type.

![Correcting entries and account transfers from identifying the original error to posting ledger adjustments and rechecking the trial balance.](https://static.pastpaperhero.com/images/acca-fa1-the-journal-and-adjustments-correcting-entries-and-transfers_00.png)

_Journal correction procedures progress from identifying the error to posting revised double entries, using suspense only for trial balance differences._

### Errors Revealed by the Trial Balance

These errors cause total debits and credits to differ in the trial balance, indicating an incomplete or asymmetric entry. The common response is to enter the difference into a suspense account, which temporarily balances the trial balance until the error is found and corrected.

When the original mistake is identified, the correcting entry is recorded as a journal entry, including the suspense account.

### Errors Not Revealed by the Trial Balance

Many errors, such as posting an amount to the wrong account (but on the correct side) or omitting the transaction entirely, will not show up in the trial balance. However, they still require correction, usually via a transfer or correcting entry.

### Worked Example 1.1

A payment of \$200 for repairs was recorded in the advertising expense account by mistake. Prepare the correcting journal entry.

> **Answer:**
> Debit Repairs \$200
> Credit Advertising \$200
> (To transfer the amount from advertising to repairs)

### Worked Example 1.2

A cash sale of \$500 was entered only in the sales account, with the corresponding debit in cash at bank omitted. The trial balance does not balance. Show the correcting entry.

> **Answer:**
> Debit Cash at Bank \$500
> Credit Suspense \$500
> (To record omitted debit entry and clear suspense account)

### Worked Example 1.3

> **Question:**
> A business finds its trial balance is out by \$120. Investigation reveals a payment from a credit customer was entered only on the credit side of their receivables account. What is the correcting journal entry?
>
> **Answer:**
> Debit Suspense \$120
> Credit Receivables \$120
> (To correct double credit, restoring correct balances and clearing suspense account)
>
> **Exam Warning:**
> Check that the correction you make reverses the original incorrect entry, then records the correct entry. Always state the accounts and the amounts. Failing to do both will result in the error not being properly rectified.

### USING THE SUSPENSE ACCOUNT

When the totals of debits and credits in the trial balance differ, a suspense account is opened for the difference. This allows the trial balance to be produced and accounts to be reviewed while the source of the error is being investigated.

Once the error is found, a correcting journal entry is made—including the suspense account—so that, when all errors are resolved, the suspense account has a nil balance.

> **Key Term: suspense account**
> A temporary holding account for errors detected by an imbalance in the trial balance. It is closed once all errors are resolved.

### RECORDING TRANSFERS BETWEEN ACCOUNTS

Sometimes an amount may be posted to the wrong account. To reclassify it correctly, a transfer journal entry is required.

Example: Wages expense of \$1,000 was recorded in salaries expense. The correct journal entry to transfer \$1,000 from salaries to wages is:

- Debit: Wages \$1,000
- Credit: Salaries \$1,000

This ensures the expense is recorded under the correct heading, important for accurate financial statements.

### FORMAT OF A JOURNAL ENTRY

A complete journal should include:

- The date of the transaction
- The accounts to be debited and credited, along with amounts
- A brief but clear narrative explaining the purpose

For example:

| Date       | Details                                                 | Debit ($) | Credit ($) |
| ---------- | ------------------------------------------------------- | --------- | ---------- |
| 10/07/20X7 | Rent Expense (To reverse error)                         | 500       |            |
|            | Repairs Expense                                         |           | 500        |
|            | Correction: Rent expense was used for building repairs. |           |            |

> **Revision Tip:**
> Before posting any correcting entry, always work out both: (1) What entry was made? (2) What entry _should_ have been made? The difference is your correcting entry.

## Summary

The journal is used for recording corrections, non-standard transactions, and transfers between ledger accounts. When the trial balance does not agree, use a suspense account to record the difference until all errors are identified and corrected with journal entries. Transfers and corrections must always be recorded as proper double entries and should include a clear narrative for clarity and audit trail.

## Key Point Checklist

_This article has covered the following key knowledge points:_

- Explain the purpose of the journal in accounting
- Prepare journal entries to correct errors and record transfers
- Recognise when a suspense account is required and how to clear it
- Identify errors revealed and not revealed by the trial balance
- Apply the correct format and narrative to journal entries

## Key Terms and Concepts

- journal
- suspense account
- correcting entry
- transfer


The journal and adjustments - Correcting entries and transfers