ACCA Applied Knowledge · Financial Accounting · Suspense accounts
A bookkeeper records a cash payment of $850 for insurance by debiting insurance expense with $580 and crediting bank with $850. What adjustment is needed, and how will the trial balance be affected before correction?
The expense was debited $580 against a $850 bank credit, so total debits are $270 lower than credits. The correction is to debit insurance $270 and credit suspense $270, clearing the balance that was opened to make the trial balance agree.
- ADebit insurance $270 and credit suspense $270; debits are lower than credits by $270Correct
- BDebit insurance $270 and credit suspense $270; debits are higher than credits by $270
- CDebit suspense $270 and credit insurance $270; debits are lower than credits by $270
- DCredit insurance $270 and debit bank $270; the trial balance is unaffected
Explanation
The insurance debit is $580 but the bank credit is $850, so debits are $270 short and a debit suspense of $270 opened the imbalance. Correcting the expense requires a further debit of $270 to insurance, with the credit clearing suspense. Option 3 reverses the entries, and the last option wrongly says the trial balance is unaffected.
Did you get it right without looking?
One question tells you little. A timed set on Suspense accounts shows your real accuracy, how long you take and where you lose marks.
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