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Correction of Errors one approach

Correction of Errors one approach. Sequence of Topics. Double Entry including accruals/prepayments to simple P&L and Balance Sheet Incomplete Records Control Accounts – Subsidiary Books Depreciation and Disposal Clubs, Service, Farm Manufacturing Correction of Errors Bank Reconciliations.

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Correction of Errors one approach

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  1. Correction of Errorsone approach

  2. Sequence of Topics • Double Entry including accruals/prepayments to simple P&L and Balance Sheet • Incomplete Records • Control Accounts – Subsidiary Books • Depreciation and Disposal • Clubs, Service, Farm • Manufacturing • Correction of Errors • Bank Reconciliations

  3. Sequence of Topics • Departmental • CVP • Cash Flow • Product Costing • Ratio Analysis • Budgeting • Published • Tabulars

  4. Double Entry

  5. Summary of possible entries

  6. 4 Questions Thus with every transaction you come across you need to decide: • What are the two accounts involved? • Which type of account is each one? • Does the transaction cause an increase or decrease in each account? • Therefore is it a Dr or Cr? Finally make the entry in the relevant accounts (Handout)

  7. Recording Transactions

  8. Subsidiary Books • Source documents • List • Reduce entries in accounts in nominal ledger

  9. Trial Balance • Arithmetical check on double entry before preparation of Final Accounts and Balance Sheet • Obvious there are errors • Hidden errors • Material amounts • Minor discrepancies

  10. Suspense • Trial Balance doesn’t work – make it work temporarily by putting in Suspense A/C • Prepare final accounts including errors while somebody searches for errors • Correct the errors through double entry NOT by crossing out (illegal!)

  11. Errors

  12. Types of Errors • Read and Explain Pairs • Read a little -- Talk a little

  13. Approaching the Question • What Happened • What should have happened • Correction = JOURNAL ENTRY

  14. Journal Entries • Transfer Suspense Items • Highlight Profit & Loss items • Highlight Balance Sheet items

  15. Suspense Account • As per Journal Entries • Transfer balance to what buried in – follow double entry rules

  16. Adjusting the Profit Profits Profits

  17. Adjusting the Profit Profit as per draft accounts Add Less Corrected Net Profit

  18. Balance Sheet Items

  19. Watch for • Nature of business • Unseen items • Switching figures • English!

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