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ACCA Applied Knowledge · Financial Accounting

Correction of Errors for ACCA Financial Accounting

Correction of errors means finding mistakes in the accounting records and fixing them with journal entries. Identify the error type, work out what was posted and what should have been posted, then post the difference. Any one-sided entry goes through the suspense account. Finally, check the effect on profit.

What this chapter covers

This chapter covers what to do when the books are wrong. You learn the main types of error, how to write a journal that fixes each one, how a suspense account holds a trial balance difference until the causes are found, and how corrections change profit and net assets.

The chapter links to several other parts of FA. It builds on double entry and the trial balance. It also feeds into preparing financial statements, because exam questions often give you a draft profit and ask for a revised profit after corrections. The same skill appears in bank reconciliations and control account reconciliations, where you also adjust records for differences.

In the computer-based exam, this topic usually appears as Section A objective test questions: multiple choice on which error does not affect the trial balance, number entry for a corrected profit or a suspense balance, and multiple response on which errors need a suspense entry. It can also be a part of a longer Section B question on accounts preparation.

Error questions are short, rule-based and very predictable, so they are some of the easiest marks in FA once you have a method. Each Section A question is worth 2 marks, and a single method (compare what was done with what should have been done) solves almost all of them. The same method also supports the longer accounts preparation questions, where a missed correction makes your final profit wrong. Time spent here pays back quickly.

Correction of errors: topics in the order to study them

  1. 1Types of Accounting ErrorsYou must recognise each error type first, because the type decides whether the trial balance still balances and whether suspense is needed.
  2. 2Correcting Errors with Journal EntriesOnce you know the types, you learn the one method for fixing them: reverse the wrong entry and post the right one, or post the difference.
  3. 3Suspense AccountsSuspense depends on journals, since one-sided errors are cleared through it, so it comes after you can write correcting entries.
  4. 4Effect of Errors on Profit and Trial BalanceThis pulls everything together, asking you to judge the effect of each correction on profit, net assets and the trial balance.

How to prepare Correction of errors

Aim to use one routine for every question. Practise it until it is automatic, because the exam rewards speed and accuracy.

  1. Learn the six classic error types: omission, commission, principle, original entry, compensating and reversal. Write a one-line example of each in your own words.
  2. For each type, note two things: does the trial balance still balance, and is suspense needed. Only errors that leave the trial balance out of balance need suspense.
  3. Practise the routine for journals: write what was posted, write what should have been posted, then post the difference. Always state the account names clearly.
  4. Practise opening a suspense account. Put the trial balance difference on the correct side, then clear it using the corrections. It should end at zero.
  5. For profit questions, take each correction one by one. Ask if it changes an income or expense account. Add to or deduct from profit, and leave profit unchanged for statement of financial position items only.
  6. Do timed objective questions in all three formats: multiple choice, multiple response and number entry. Review every wrong answer and name the error type you missed.
  7. Finish with a mixed set that combines errors, suspense and a revised profit figure, the way a longer exam question would.

Common mistakes in Correction of errors

  • Putting every error through the suspense account.

    Fix: Ask one question first: did the debits and credits still equal each other? If yes, there is no suspense entry.

  • Posting the full correct amount instead of the difference.

    Fix: Work out what was posted and what should have been posted, then post only the gap, or reverse the wrong entry and post the right one.

  • Putting the suspense balance on the wrong side.

    Fix: If debits were short, debit suspense. If credits were short, credit suspense. Then check that your corrections clear it to zero.

  • Adjusting profit in the wrong direction.

    Fix: Ask whether profit was overstated or understated, then decide whether to add or deduct. Write a short plus or minus next to each correction.

  • Changing profit for corrections that only involve statement of financial position accounts.

    Fix: Check whether either side of the journal is an income or expense account. If neither is, profit stays the same.

Last-day revision: Correction of errors

  • Error of omission: a transaction is left out completely, so the trial balance still balances.
  • Error of commission: posted to the wrong account of the same type, so the trial balance still balances.
  • Error of principle: posted to the wrong type of account, such as capital expenditure treated as an expense; the trial balance still balances.
  • Error of original entry: wrong amount used in both the debit and the credit; the trial balance still balances.
  • Compensating errors: two errors of equal and opposite amounts cancel out; the trial balance still balances.
  • Reversal of entries: debit and credit swapped; the trial balance still balances.
  • Single-sided entries, or debit and credit of different amounts, make the trial balance fail and need suspense.
  • Correcting journal: remove the wrong entry, then post the right one, or post only the difference.
  • If the trial balance debits are lower than credits, the suspense account has a debit balance.
  • Suspense is not a real asset or liability; it should be cleared to nil once all errors are corrected.
  • Only corrections to income or expense accounts change profit; those to assets and liabilities alone do not.
  • Check the direction: an expense understated means profit was overstated, so deduct the correction from profit.

Correction of errors practice questions

Correction of errors in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Correction of errors: frequently asked questions

Which errors do not affect the trial balance?

Omission, commission, principle, original entry, compensating errors and reversal of entries all leave the trial balance balanced. Errors that unbalance it include a one-sided entry or a debit and credit of different amounts. Learn this list, as it is a favourite objective test question.

How do I know whether a suspense account is needed?

Look at whether the original posting kept total debits equal to total credits. If it did not, the trial balance is out and the difference sits in suspense until the error is found and corrected. If it still balanced, no suspense is needed.

Do all error corrections change profit?

No. A correction changes profit only if it involves an income or expense account. Moving an amount between two assets, or between an asset and a liability, does not change profit.

How should I practise this chapter for the computer-based exam?

Do many short questions under time pressure and cover all three response types. For each one, name the error type before you calculate. This habit stops you from choosing the wrong correction and makes number entry answers more reliable.