ACCA Applied Knowledge · Financial Accounting

Suspense accounts: formula sheet

Full chapter guide

Key formulas

Suspense balance: Suspense = difference between total debits and total credits in the trial balance; Put it on the side that is short so the trial balance agrees.
Debit suspense: Total credits > total debits → debit suspense; Debits are too low, so the suspense account is a debit balance.
Credit suspense: Total debits > total credits → credit suspense; Credits are too low, so the suspense account is a credit balance.
Clearing rule: Suspense balance after all corrections = nil; If it is not nil, an error is still missing.
Correcting entry for a one-sided error: Make the missing side of the entry; the other side is suspense; For example, a missing credit to a ledger account is corrected by Dr Suspense, Cr that account.
Why the trial balance still balances: Total debits = total credits, even though an entry is wrong; The six errors either post equal debits and credits, or two errors cancel.
Correction journal (general rule): Dr account that should have been debited and Cr account that should have been credited, then reverse the wrong entry; Cancel the wrong entry, then post the right one. Often combine them into one journal.
Error of original entry correction: Correct amount − wrong amount = adjustment on both sides; If too little was recorded, post the extra. If too much, reverse the excess.
Reversal of entries correction: Adjustment = 2 × the original amount; Cancel the wrong entry once, then post the correct entry once. Both sides move by double the amount.
Compensating errors: Debit error amount = credit error amount; Correct each error separately with its own journal. No suspense is used.
Trial balance difference: Difference = Total debits − Total credits (in absolute value); If debits are larger, the suspense account is a credit balance. If credits are larger, it is a debit balance.
Suspense side rule: Debits short → Dr Suspense. Credits short → Cr Suspense; Suspense takes the side that is missing from the trial balance.
Transposition clue: Difference from a one-sided transposition is divisible by 9; A clue only, not proof. Other errors can also give a multiple of 9.
Correction of a one-sided entry: Post the missing side to the correct account and the opposite side to Suspense; Suspense clears by the amount of the error.
Suspense clearing check: Opening suspense balance ± corrections = 0; If suspense does not reach zero, a correction is wrong or missing.
Suspense balance at creation: Total debits > total credits: Cr Suspense. Total credits > total debits: Dr Suspense; The suspense account holds the difference so the trial balance balances.
Correcting journal logic: Correction = what should have been posted − what was actually posted; Reverse the wrong entry, post the right one, or combine them into net entries.
Single-sided entry: Post the missing other side to the correct account, with the opposite side in suspense; Example: a cash receipt debited to bank with no credit posted. Debits were too high, so suspense was credited when the trial balance was balanced. The correction is Cr the correct account, Dr suspense. If both sides had been omitted, no suspense entry would be needed.
Errors not needing suspense: Omission (both sides), commission, principle, compensating, original entry, reversal; Debits still equal credits, so the trial balance is unaffected.
Revised profit: Revised profit = original profit ± effect of each correction on income and expenses; Increase in expense lowers profit. Increase in income raises profit.
Corrected profit: Corrected profit = Draft profit + increases in profit − decreases in profit; Include only corrections where an income or expense account is debited or credited.
Effect of a debit or credit in the correcting journal: Debit to an expense or credit to income: decreases profit. Credit to an expense or debit to income: increases profit.; Check the account affected, not the original wrong entry.
Errors with no profit effect: Both sides of the correction are assets, liabilities, equity or suspense: profit is unchanged; Examples: an item posted to the wrong receivable account, or a purchase of a non-current asset debited to the wrong asset account.
Suspense account: Suspense balance = balancing figure for the trial balance difference, which arises from errors such as one-sided or unequal postings; cleared to zero when all corrections are posted; Debit balance in suspense if total credits exceeded debits in the trial balance. Credit balance if debits exceeded credits.

Quick revision

A suspense account is temporary and should be nil once all errors are found.
Errors of omission, commission, principle, original entry, compensating and complete reversal do not affect trial balance totals.
One-sided entries, transpositions and unequal debit and credit amounts make the trial balance fail.
A trial balance that balances does not prove the books are free of errors.
If debits are less than credits in the trial balance, the suspense balance is a debit. If debits exceed credits, it is a credit.
Correcting journal: reverse the wrong entry, then post the right one, or journal only the net difference.
Only use suspense in a correction if the error caused the imbalance.
A transposition error gives a difference divisible by 9.
Errors affecting income or expenses change profit; errors between two statement of financial position accounts do not.
Increase in profit raises net assets by the same amount.
Always check the direction: is the correction a debit or a credit to each account?
Redo the suspense account at the end to confirm it clears.

Common mistakes

Putting the suspense balance on the wrong side Fix: Add the suspense to the side that is smaller. Debits short means debit suspense.
Using suspense for every error Fix: Use it only for errors that stop the trial balance balancing, or for amounts whose correct account is not yet known. Errors like omission or wrong account are corrected between the real accounts.
Using a suspense account to correct these errors. Fix: Ask if the trial balance was out. If debits already equalled credits, no suspense is needed.
Confusing error of commission with error of principle. Fix: Commission: wrong account but same class, such as one expense for another. Principle: wrong class, such as an asset treated as an expense.
Putting the suspense balance on the wrong side. Fix: Suspense takes the side that makes the totals equal. Larger debits mean a credit suspense balance.
Treating a transposition made on both sides as a cause of imbalance. Fix: Check if both the debit and credit used the same wrong figure. If so, the trial balance balances and suspense is not used.
Putting an error of commission, or an omission of both sides, through suspense. Fix: Check whether debits still equal credits. If they do, correct directly between the accounts and leave suspense alone. Only a one-sided or unequal entry needs suspense.
Debiting suspense when it should be credited, and vice versa. Fix: If debits exceed credits on the trial balance, credit suspense to balance. Then the corrections must clear it back to nil.
Adjusting profit for errors that only involve assets and liabilities. Fix: Check the journal. If there is no income or expense account in it, profit does not change.
Using the wrong direction for an expense correction. Fix: Write the journal. Debit to an expense reduces profit. Credit to an expense increases profit.

Exam tips

Decide first whether an error affects the trial balance. Many options are traps because debits still equal credits.
In a multiple choice question, check the side of the suspense balance before the amount. Two options often have the same figure on opposite sides.
For a number entry question, work out the net of the suspense corrections and give the answer in the form requested, with the correct sign or side.
If the question asks about profit, check each correction against income and expense accounts. Suspense itself never changes profit.
Remember that the suspense account must be nil after all corrections. Use this as your final check.
Before reaching for suspense, check whether the question says the trial balance did not balance. If it says it balanced, use a straight correction.
In multiple response questions, select only error types that leave debits equal to credits. Mark single-sided errors as not qualifying.
Match each description to its name: wrong account same class is commission; wrong class is principle; equal and opposite is compensating.