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Financial Accounting · Correction of errors

Correcting Errors with Journal Entries in ACCA Financial Accounting

Updated 11 October 2026 · Fact-checked

A correcting journal fixes an error in the ledgers. Work out the entry that was made, work out the entry that should have been made, then debit and credit the difference. If the trial balance did not balance, one side of the correction goes to suspense. Check that suspense clears to nil.

Understand Correcting Errors with Journal Entries

Errors happen in every ledger. Some are found when the trial balance fails to balance. Others are found later, such as when you reconcile a bank or a supplier statement. Either way you fix them with a journal entry. You do not scribble out the old entry. The ledger keeps a clear record of what was done and how it was fixed.

The core idea is simple. Ask two questions. What was posted? What should have been posted? The correcting journal is the entry that moves you from the first to the second. You can think of it as two steps in one: reverse the wrong entry, then post the right one. In the exam you usually net these into a single short journal.

There are two groups of error. Some leave the trial balance balanced: omission (complete omission of a transaction, both debit and credit), commission, principle, original entry, compensating and reversal of entries. Others make debits differ from credits: a one-sided entry, a wrong amount on one side only, or a transposition made on one side only. If only one side of a transaction is omitted, the trial balance does not balance. If the same wrong amount is posted to both debit and credit, the trial balance still balances. Errors that unbalance the trial balance need a suspense account, which holds the difference until the error is fixed.

A suspense account is not a real asset or liability. It is a temporary holding place. Before you correct anything, you open it with the trial balance difference. Each correction that fixes the imbalance posts the other side to suspense. When all errors are corrected, suspense should be nil.

Some corrections change profit. For example, if an expense was wrongly debited to an asset account, moving it to expenses reduces profit. Always ask whether the correction touches an income or expense account. If it does, profit changes. If it only moves between statement of financial position accounts, profit is unchanged.

Key formulas to remember

Correcting journal logic
Correcting entry = Correct entry − Entry actually made
Reverse the wrong debit and credit, post the right ones, then net off accounts that appear twice.
Errors that do not need suspense
Omission (of both debit and credit), commission, principle, original entry, compensating, reversal: the trial balance still balances
No suspense is needed because the trial balance still balances, and the correcting journal balances on its own. For a compensating error, make the correction to each account separately.
Errors that need suspense
Suspense = the balancing figure that makes trial balance debits equal credits
If debits exceed credits, suspense is a credit; if credits exceed debits, suspense is a debit.
Suspense rule
Corrected suspense balance = 0
If your suspense account does not clear to nil, you have missed or mis-posted an entry.
One-sided entry correction
Post the missing side and clear suspense with the other side
For a missing debit, Dr the account, Cr suspense. For a missing credit, Cr the account, Dr suspense.
Effect on profit
Profit change = Income corrections − Expense corrections
Extra income raises profit. Extra expense cuts profit. Moves between asset or liability accounts do not change it.

How to solve Correcting Errors with Journal Entries questions

Use this method for any correcting journal question. Keep each step short and write the accounts in full.

  1. 1Read the error and decide what was actually posted. Write it as Dr X, Cr Y with the amount.
  2. 2Decide what should have been posted. Write it as Dr A, Cr B.
  3. 3Compare the two. Reverse any account that was wrongly used and post the right one. Net off any account that appears on both sides.
  4. 4Check whether both debit and credit were affected. If only one side was posted, or the amounts differed, the other side goes to suspense.
  5. 5Write the journal with Dr first, then Cr, then a short narrative.
  6. 6If suspense is involved, post the entry into the suspense account and check that it clears to nil.
  7. 7If asked, state the effect on profit. Only income and expense account changes alter profit.
  8. 8Check the journal balances: total debits equal total credits.

Quickest way: Fix the difference only

When to use it: Use this in the objective test when you must pick the correct journal from four options.

  1. Write the wrong entry and the right entry in two lines.
  2. Cross out any account and amount that appear identically in both. What remains is the correction.
  3. If one side was never posted, the missing side pairs with suspense.
  4. Eliminate any option that does not balance.
  5. Eliminate options that debit what should be credited by checking the direction of each account change.
  6. For number entry, compute the suspense balance or profit change before you type.

Common mistakes in Correcting Errors with Journal Entries

  • Reversing the wrong entry but forgetting to post the right one

    You stop once the first half feels complete.

    Fix: Always write two lines first: wrong and right. Then net them.

  • Putting the suspense balance on the wrong side

    You mix up which side of the trial balance was short.

    Fix: The suspense account is the balancing figure. If debits exceed credits in the trial balance, suspense is a credit balance. If credits exceed debits, suspense is a debit balance.

  • Using suspense for errors that do not affect the trial balance

    You assume every correction needs suspense.

    Fix: If the wrong entry had equal debits and credits, the correction balances on its own. Use suspense only when one side is missing or wrong.

  • Doubling or halving a transposed or mis-posted amount

    You correct by the full amount instead of the difference.

    Fix: If ₹ 540 was posted as ₹ 450, the difference is ₹ 90. Correct only the ₹ 90 on the side affected.

  • Stating the wrong profit effect

    You forget which accounts are income or expense.

    Fix: List each account in the journal. Only income and expense accounts change profit. A debit to an expense reduces it.

  • Confusing errors of principle and commission

    Both post to the wrong account.

    Fix: Commission is the wrong account of the same type, such as one debtor for another. Principle is the wrong class of account, such as an expense treated as an asset.

Worked examples

Example 1

A business paid $4,000 for repairs to a machine and debited the amount to the machinery cost account. Credit was correctly made to bank. Prepare the correcting journal and state the effect on profit.

Show the solution
  1. Wrong entry: Dr Machinery cost $4,000, Cr Bank $4,000.
  2. Right entry: Dr Repairs expense $4,000, Cr Bank $4,000.
  3. Bank is the same in both entries, so net it off.
  4. Correction: Dr Repairs expense $4,000, Cr Machinery cost $4,000.
  5. This is an error of principle: revenue expenditure was treated as capital. No suspense is needed.
  6. Repairs expense rises by $4,000, so profit falls by $4,000.

Answer: Dr Repairs expense $4,000; Cr Machinery cost $4,000. Profit falls by $4,000.

Example 2

A trial balance did not balance. Credits exceeded debits by $700, and the difference was put to suspense. It was later found that (a) a cash sale of $1,200 was credited to sales but no debit was made to the bank account, and (b) rent of $500 was paid by cheque, debited to the rent account as $1,000 and credited to the bank as $500. Prepare the journals and show suspense clears.

Show the solution
  1. Opening suspense: credits exceeded debits by $700, so suspense is a debit balance of $700.
  2. (a) Missing debit of $1,200 to bank. Journal: Dr Bank $1,200, Cr Suspense $1,200.
  3. (b) Rent was debited $1,000 but should be $500. Debit is overstated by $500. Journal: Dr Suspense $500, Cr Rent expense $500.
  4. Suspense account: Dr balance $700 plus Dr $500 = $1,200 debit. Credit $1,200 from (a).
  5. Debits $1,200 equal credits $1,200, so suspense is nil.
  6. Profit effect: sales unchanged, rent expense falls by $500, so profit rises by $500.

Answer: (a) Dr Bank $1,200, Cr Suspense $1,200. (b) Dr Suspense $500, Cr Rent expense $500. Suspense clears to nil. Profit rises by $500.

Exam tips

  • Write wrong entry and right entry as two lines before choosing an option or typing an answer. It prevents most errors.
  • If an option does not balance, or uses suspense for an error that left the trial balance balanced, reject it.
  • For profit questions, list each account in the correction and note only income and expense changes.
  • In multi-task questions, build the suspense account step by step. Use the closing balance as a check on your journals.
  • Watch the direction. Check whether a number entry asks for the debit or credit amount, and enter a positive number unless told otherwise.

Practice questions from Correction of errors

Correcting Errors with Journal Entries in other exams

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

Correcting Errors with Journal Entries: frequently asked questions

What is a correcting journal entry?

It is a journal that fixes an earlier error in the ledgers. It reverses the wrong entry and posts the right one, usually netted into one short journal. It keeps a clear audit trail instead of erasing the original.

When do I use a suspense account in a correction?

Use it when the error made debits differ from credits, such as a one-sided entry or an amount posted differently on each side. Errors that left the trial balance balanced do not need it. Suspense should be nil once every error is corrected.

How do I correct an error of principle?

Move the amount from the wrong class of account to the right one. For example, if repairs were debited to a non-current asset, debit repairs expense and credit the asset. Any bank or payable entry that was correct stays untouched.

Do all corrections change profit?

No. Only corrections involving an income or expense account change profit. Moving an amount between two statement of financial position accounts, such as one receivable to another, has no effect on profit.