## **Learning Outcomes**

After reading this article, you will be able to explain the purpose of a suspense account, identify the main types of errors found in bookkeeping, prepare correcting journal entries to clear suspense accounts, and update a trial balance after corrections have been made. You will gain the practical skills needed to ensure reliable financial records and prepare for ACCA FA2 exam tasks on these topics.

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

For ACCA Maintaining Financial Records (FA2), you are required to understand how errors affect the trial balance, why a suspense account is used, how to correct bookkeeping mistakes, and how to update the trial balance after making corrections. Ensure you are confident with:

- The purpose and preparation of a trial balance
- Distinguishing errors detected or not detected by a trial balance
- Identifying and classifying bookkeeping errors (e.g., omission, commission, principle, transposition)
- Explaining and using a suspense account when the trial balance does not agree
- Recording correcting journal entries and clearing the suspense account
- Revising the trial balance after errors are corrected
- Assessing the impact of corrections on 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 one of the following errors will cause a suspense account to be created?
   a) Sale to customer omitted
   b) Purchases posted to wrong account of same type
   c) Payment entered on the wrong side of the ledger
   d) Closing inventory understated

2. True or false? A suspense account should always be cleared before preparing the financial statements.

3. An invoice for office equipment costing \$2,400 was posted only to the debit side of the equipment account. What correcting journal entry is needed?

4. Briefly explain the purpose of a suspense account.

## **Introduction**

A trial balance ensures the double-entry system has worked – each debit equals a credit. However, mistakes still occur in bookkeeping. When the trial balance does not balance, a suspense account is used to allow the accounting process to continue while errors are investigated and corrected. Understanding how to identify, classify, and correct errors is essential for accurate financial records and is frequently tested in the FA2 exam.

> **Key Term: trial balance**
> A list of all general ledger account balances at a specific date, with debit and credit totals, used to check mathematical accuracy of double-entry bookkeeping.
>
> **Key Term: suspense account**
> A temporary ledger account used when there is a difference between total debits and credits, holding the difference until the cause is found and corrected.

## **Overview of Suspense Accounts and Bookkeeping Errors**

A suspense account is created when the trial balance fails to agree. This account temporarily holds the difference, preserving double-entry integrity until the true nature of the error is discovered and a correction can be made. Clearing the suspense account is essential to produce accurate final financial statements.

### Common Types of Bookkeeping Errors

Bookkeeping errors can be divided into those detected by the trial balance, and those not detected:

- **Errors detected by a trial balance (cause imbalance/suspense):**
  - Single-sided entry (only a debit or a credit recorded)
  - Unequal debits and credits
  - Errors in balancing or totaling ledger accounts
  - Partial entry to incorrect account type (e.g., posting to suspense because the other account is not known)

- **Errors not detected by a trial balance (debits = credits but wrong accounts/amounts):**
  - Error of omission (both sides missing)
  - Error of commission (correct type, wrong account)
  - Error of principle (wrong account type)
  - Compensating errors (opposite errors of equal size)
  - Error of original entry (wrong amount posted to both sides)
  - Transposition error (numbers reversed, debit and credit match)
  - Reversal of entries (debit and credit posted the wrong way)

> **Key Term: error of omission**
> A transaction not recorded at all—neither debit nor credit posted, so trial balance still agrees.
>
> **Key Term: error of commission**
> Entry to correct side of correct type of account, but wrong named account for that type (e.g., wrong customer).
>
> **Key Term: error of principle**
> Entry made to the wrong _type_ of account (e.g., expense posted to asset).
>
> **Key Term: compensating error**
> Two or more errors cancel each other out arithmetically, so the trial balance still agrees.

### The Purpose and Use of a Suspense Account

When a discrepancy is found in the trial balance (debits ≠ credits), the suspense account is opened for the difference. This allows routine processing to continue, but signals the need for investigation. Once errors are found, correcting entries are made to both the affected accounts and to suspense, ultimately reducing the suspense account to zero. No suspense balance should remain when final statements are produced.

> **Key Term: clearing the suspense account**
> Making adjusting entries so the balance in the suspense account becomes zero after all errors are corrected.

## **Correction of Errors and Revising the Trial Balance**

After errors are located, correcting journal entries are prepared. The suspense account is used only if the error previously affected trial balance agreement. The sequence is:

1. Identify and classify the error.
2. Determine the correct double-entry.
3. Determine what was actually recorded.
4. Calculate and record the correcting entry, often involving the suspense account.
5. Recompute the trial balance, which should then agree.

### **Worked Example 1.1**

A payment of \$500 for repairs was recorded only in the cash at bank account and not entered in the repairs expense account. The trial balance was \$500 out of balance, with excess credits.

**What correcting entry is required to fix the books and clear the suspense account?**

> **Answer:**  
>
> The missing debit to repairs caused the suspense account to have a \$500 debit balance. The correcting journal is:
> Debit: Repairs expense \$500  
> Credit: Suspense account \$500
> This increases expense, decreases the suspense account, and brings the trial balance into agreement.

### **Worked Example 1.2**

A new asset costing \$4,000 was posted as \$400 to both the debit and credit sides of the relevant accounts.

**How is this “original entry” error corrected?**

> **Answer:**  
>
> The correct entries should be \$4,000. Only \$400 was recorded, so \$3,600 is missing. Post the following:
> Debit: Asset account \$3,600  
> Credit: Supplier (or cash) \$3,600

No suspense entry is needed, since equal debits and credits were made, but for the wrong amount.

### **Exam Warning**

> Some errors (like both sides omitted, or swapped similar account types) will NOT affect the trial balance—no suspense account will be involved. Be ready to distinguish which errors create suspense balances.

## **Revising the Trial Balance After Corrections**

Once all corrections are made:

- Post all correcting journal entries
- Recalculate each ledger account balance
- List all balances: debits to one column, credits to the other
- The trial balance should now agree and be ready for year-end adjustments or financial statement preparation

### **Worked Example 1.3**

A suspense account shows a credit balance of \$1,200. After reviewing entries, you discover:

- Cash received as additional capital was posted only to bank, not capital
- A bill for \$800 repairs was omitted entirely
- A purchase of inventory for \$400 was correctly posted to inventory, but only \$40 to payables

**What entries are needed to clear suspense and update the trial balance?**

> **Answer:**
>
> 1. Record missing capital introduction:
>    Debit: Suspense \$1,200  
>    Credit: Capital \$1,200
> 2. Record omitted repair expense:
>    Debit: Repairs \$800  
>    Credit: Suspense \$800
> 3. Correct partial entry for purchase:
>    Debit: Suspense \$360  
>     Credit: Payables \$360
>    After these adjustments, the suspense account should have a nil balance.

## **Summary**

A suspense account is a temporary measure that identifies when the trial balance does not agree, caused by one-sided or unequal entries. Correcting errors involves understanding the type of error, preparing the required journal, updating the suspense account, and recalculating the trial balance. Accurate records depend on clearing all suspense balances before preparing financial statements.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Explain the role and purpose of a suspense account when the trial balance does not balance
- List and distinguish the main types of bookkeeping errors
- Identify which errors will and will not be detected by the trial balance
- Record correcting journal entries, including clearing the suspense account
- Revise and agree a trial balance after completing corrections

## **Key Terms and Concepts**

- trial balance
- suspense account
- error of omission
- error of commission
- error of principle
- compensating error
- clearing the suspense account


Suspense account and corrections - Revised trial balance after corrections