## **Learning Outcomes**

After reading this article, you will be able to explain when to use the general journal for corrections and adjustments in the accounting records. You will know how to prepare correcting entries for common types of errors, draft appropriate narratives for each journal entry, and describe the process for clearing suspense accounts. You will also see how these actions ensure the accuracy and clarity needed for preparation of reliable financial statements in line with the ACCA FA2 syllabus.

## **ACCA Maintaining Financial Records (FA2) Syllabus**

For ACCA Maintaining Financial Records (FA2), you are required to understand the role and application of the general journal in maintaining complete and accurate financial records. For exam purposes, this includes:

- Recording correcting journal entries and adjustments not handled by books of prime entry
- Explaining the circumstances where the general journal must be used (such as error correction, suspense accounts, non-routine adjustments)
- Including clear narratives with each journal entry to provide an adequate audit trail
- Clearing suspense accounts and updating the general ledger accordingly
- Understanding the impact of correcting entries on the trial balance and financial statements

## **Test Your Knowledge**

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

1. Which account is commonly used to temporarily hold one side of a transaction when the correct account is not yet known?
   a) Accruals
   b) Suspense account
   c) Receivables ledger
   d) Prepayments
2. What information must be included with every correcting journal entry in the general journal?
   a) Only account codes
   b) A narrative explanation
   c) Solely the debit amount
   d) Date of the original transaction only
3. True or false? The general journal is typically used to record routine sales and purchase transactions.
4. Briefly explain why narratives are required in general journal entries.
5. What is the primary purpose for clearing suspense accounts before preparing final statements?

## **Introduction**

Regular business transactions are recorded through books of prime entry like sales and purchases day books. However, certain items—especially corrections and non-routine adjustments—must be entered via the general journal. ACCA FA2 frequently assesses your ability to use the general journal correctly to maintain reliable accounting records.

Understanding when and how to use the general journal, including proper narratives, is essential for correcting errors, clearing suspense account balances, and ensuring all data is ready for accurate financial reporting.

> **Key Term: general journal**
> A record used to enter non-routine or adjusting transactions directly into the accounting system—especially corrections, adjustments, and entries not covered by books of prime entry.

## **Uses of the General Journal**

Most regular entries (sales, purchases, cash movements) are posted through day books. The general journal is used for:

- Correction of errors identified in the ledgers
- Adjustments not captured by standard day books (such as year-end accruals, depreciation, or prepayments)
- Transactions involving suspense accounts
- Transfers or reclassifications between accounts
- Documenting clear narratives for audit trails

> **Key Term: correcting entry**
> A journal entry prepared to amend an error in the accounting records, so all transactions are presented accurately.
>
> **Key Term: suspense account**
> A temporary account used to record one side of a transaction or unexplained difference until the correct classification can be determined.

## **Correcting Entries: Principles and Approach**

When an error is found in the ledger accounts, the steps to correct it are as follows:

1. Identify what was originally recorded.
2. Determine what the correct entry should have been.
3. Calculate and prepare a correcting journal entry.
4. Add a clear narrative to explain the reason for the adjustment.

Correcting entries must always balance—total debits equal total credits—and provide enough explanation for anyone reviewing the records to understand why the correction was made.

### **Worked Example 1.1**

**A \$750 payment for cleaning services was recorded as repairs and maintenance expense. Prepare the correcting journal entry, including a suitable narrative.**

> **Answer:**
> Debit: Cleaning Expense \$750  
> Credit: Repairs and Maintenance \$750  
> Narrative: "To correct payment for cleaning misposted to repairs and maintenance."

## **Narratives in Journal Entries**

Every general journal entry must include a short, clear narrative. This provides:

- The nature and purpose of the transaction or correction
- The reason for making the adjusting entry
- Reference to supporting documentation, if relevant

Narratives are a key requirement for audit trails and internal clarity.

> **Key Term: narrative**
> A concise explanation included with a journal entry, describing the transaction and its purpose.

## **Clearing Suspense Accounts**

When a suspense account is used—either to allow the trial balance to agree or to temporarily record the unknown side of a transaction—the outstanding balance must be allocated to the correct account as soon as possible. Always:

- Make the general journal entry to move the amount from suspense to the correct ledger account
- Provide a narrative in the entry to describe the adjustment and reference any investigation or supporting documentation
- Confirm the suspense account balance is nil before final statements are prepared

### **Worked Example 1.2**

**A payment of \$2,000 to a supplier was recorded as: Debit Purchases \$2,000, Credit Suspense \$2,000. The correct entry should have credited Payables. What is the correcting journal entry and narrative?**

> **Answer:**
> Debit: Suspense \$2,000  
> Credit: Payables \$2,000  
> Narrative: "To correct supplier payment previously credited to suspense account."

### **Worked Example 1.3**

**The owner introduced \$5,000 capital into the business, but it was recorded as a bank loan. Prepare the correcting journal entry and narrative.**

> **Answer:**
> Debit: Loan (Liability) \$5,000  
> Credit: Capital \$5,000  
> Narrative: "To reclassify owner's capital incorrectly recorded as a loan."

## **Format of Correcting Journal Entries**

A proper correcting journal entry should include:

- Date of the adjustment
- Accounts affected (with clear indication of debit and credit)
- Amounts for each account
- A brief narrative explaining the transaction

Example layout:

| Date       | Account             | Debit ($) | Credit ($) |
| ---------- | ------------------- | --------- | ---------- |
| 10/04/20X9 | Office Rent Expense | 900       |            |
|            | Sundry Expenses     |           | 900        |
|            |                     |           |            |

**Narrative:** "To correct misposting of office rent to sundry expenses."

## **Types of Errors Corrected by General Journal**

You should be able to correct these errors:

- **Omission:** Transaction not recorded at all. Enter the full correct double-entry with narrative.
- **Commission:** Correct amount but posted to the wrong account of the correct type.
- **Principle:** Entry to the wrong class of account (e.g. recording asset purchase as an expense).
- **Reversal:** Debit and credit sides are swapped.
- **Transposition or miscasting:** Numerical error (e.g. \$54 written as \$45).
- **Single-sided or unequal entry:** Only one side or unequal debits and credits (commonly results in a suspense balance).

> **Exam Warning**
> Always check that your correcting journal reverses any incorrect entry and posts the correct transaction. Failing to state the reason for the entry can cause loss of marks in the ACCA FA2 exam.

## **Summary**

The general journal is required for entering adjustments and corrections not made via prime entry books. Proper use ensures errors are corrected, suspense account balances are cleared, and adequate narratives are included to support internal control and audit requirements. All correcting journal entries should be clear, accurate, and thoroughly explained, supporting preparation of reliable financial statements.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Identify occasions to use the general journal, especially for corrections and adjustments
- Prepare correcting entries requiring clear narrative explanations
- Record and clear suspense accounts using appropriate journal entries
- Differentiate types of errors correctable by journal entry
- Understand the importance of balancing entries in the general journal

## **Key Terms and Concepts**

- general journal
- correcting entry
- suspense account
- narrative

General journal usage - Correcting entries and narratives