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ACCA Applied Knowledge · Financial Accounting · Suspense accounts

A trial balance of Marlow Ltd did not agree, and the difference of $900 was placed in a suspense account as a credit balance. It was later found that a cash receipt of $900 from a customer had been debited to the cash account but no other entry was made. What is the effect of correcting this error on profit for the year?

Profit is unchanged. The correction debits suspense and credits receivables, and both are statement of financial position accounts, so no income or expense account is touched and the reported profit for the year stays the same.

  1. AProfit increases by $900
  2. BProfit decreases by $900
  3. CProfit is unchangedCorrect
  4. DProfit decreases by $1,800

Explanation

The correction is Dr Suspense $900, Cr Receivables $900. Both accounts are statement of financial position items, so no income statement account is affected. Profit therefore does not change. Option A wrongly treats the credit as income.

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