What types of error can occur in the accounting records, which ones a trial balance fails to reveal, and how are errors corrected?
Identifying the main types of bookkeeping error, recognising which errors a trial balance will not reveal, and correcting errors through the journal and a suspense account.
A focused answer to the SQA National 5 Accounting content on correcting errors, covering the main types of error (omission, commission, principle, original entry, reversal and compensating errors), which of them a trial balance does not reveal, and how errors are corrected using the journal and a suspense account.
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What this dot point is asking
The SQA wants you to know the main types of bookkeeping error, to say which of them a trial balance does not reveal, and to correct errors using the journal and a suspense account.
Why a balanced trial balance can still be wrong
The trial balance checks one thing only: that total debits equal total credits. If you make an error that keeps the two sides equal - for example missing out a whole transaction, or posting to the wrong account of the same type - the trial balance still balances, yet the records are wrong. The SQA expects you to know these "hidden" errors.
Errors the trial balance does not reveal
Errors the trial balance does reveal
Errors that make one side larger than the other do show up. Examples: posting only one side of a transaction, posting different amounts to the two sides, adding up an account wrongly, or entering a balance in the wrong column of the trial balance. These create a difference, which is dealt with by a suspense account.
The suspense account
When a trial balance does not agree, the bookkeeper cannot wait for every error to be found before preparing the statements. The difference is parked in a temporary suspense account so the trial balance balances. As each error is traced, a journal entry corrects it and removes the matching amount from the suspense account. When all the one-sided errors are fixed, the suspense account balance becomes zero and is closed.
Correcting errors with the journal
Every correction is recorded first in the journal (the book of original entry for adjustments), with a short narrative explaining it. For errors that did not affect the trial balance (omission, commission, and so on), the journal simply records the entry that should have been made or reverses the wrong one - no suspense account is involved because the trial balance already agreed.
Examples in context
A bookkeeper finds the trial balance is out and opens a suspense account. Tracing the difference, they discover the purchases account was added up short and journal a correction that clears the suspense account. Separately, they spot that a new van was debited to motor expenses - an error of principle that did not unbalance the trial balance - and journal it to the correct non-current asset account. Spotting which errors hide and which show, and correcting both cleanly, is the skill this dot point tests.
Try this
Q1. Name the error when a transaction is left out of the books entirely. [1 mark]
- Cue. Error of omission.
Q2. A trial balance is out. Where is the difference placed while errors are found? [1 mark]
- Cue. In a suspense account.
Q3. A new machine is debited to the repairs account. Name this error. [1 mark]
- Cue. Error of principle.
Exam-style practice questions
Practice questions written in the style of SQA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
SQA N5 style4 marksName two types of error that do not affect the agreement of the trial balance, and for each give a brief example.Show worked answer →
Award 1 mark for each error named and 1 mark for a matching example (2 errors x 2 = 4 marks). For example: error of omission (1 mark) - a sale is left out of the books entirely, so neither the debit nor the credit is recorded (1 mark); error of commission (1 mark) - the right amount is posted to the wrong account of the same type, such as posting a payment to J Smith's account instead of T Smith's (1 mark). Other valid answers are error of principle (an item posted to the wrong class of account), error of original entry (a wrong figure entered on both sides), error of complete reversal (debit and credit swapped), and compensating errors (two equal and opposite errors). Markers reward any two errors that leave the trial balance still balancing.
SQA N5 style3 marksExplain what a suspense account is and how it is used when a trial balance does not agree.Show worked answer →
When the totals of a trial balance do not agree, the difference is entered in a temporary suspense account so that the trial balance balances and the financial statements can be prepared (1 mark). As each error that caused the difference is found, a journal entry corrects it and clears the relevant amount from the suspense account (1 mark). When all such errors have been corrected, the suspense account balance falls to zero and is closed (1 mark). Markers reward describing the suspense account as a temporary holding account for the difference that is cleared by journal corrections.
Related dot points
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Sources & how we know this
- National 5 Accounting Course Specification — SQA (2023)
- National 5 Accounting - course overview and resources — SQA (2023)