Page 303 - Accountancy_F5

Exercise 9.2
Upon extracting the trial balance on July 31, 2023, Stone Town General Supplies
discovered discrepancies. The following errors were identified:
July 2: Cash amounting to TZS 600,000 was received from Loveness. However,
this transaction was only posted on the receipt side of the cash book.
FOR ONLINE READING ONLY
July 5: An item of TZS 250,000, representing interest on a bank overdraft, was
incorrectly credited to the interest account.
July 8: Goods sold to Vishranti for TZS 4,000,000 were erroneously posted in the
purchase’s ledger as TZS 400,000.
July 16: A bill receivable for TZS 530,000 was mistakenly posted to the bill payable
LANGUAGE EDITING
ledger.
July 25: Carriage on machinery, amounting to TZS 300,000, was inaccurately posted
to the carriage inwards account.
Required: Prepare the necessary journal entries and a suspense account to rectify
these errors in the books of Stone Town General Supplies.

The impacts of accounting errors on reported income and financial

position
The major focus in this section is to evaluate the effect or consequences of various
accounting errors on a business’s reported income and elements of the financial position.
Generally, errors linked to nominal accounts directly affect the business’s profit or
loss. However, errors in personal and real accounts, while not impacting profit or loss,
can distort the financial position. Therefore, if an error influencing items used in profit
calculation is discovered, an adjustment becomes necessary. This requires a detailed
examination of various items appearing in the statement of profit or loss, including
sales and purchases, sales returns and purchase returns, carriage inwards and outwards,
opening and closing inventory, all revenue items, all expense items, and depreciation.
Consider a scenario where a page is overlooked in the sales day book during the calculation
of the monthly sales total. This omission would lead to an understatement of the sales and
revenue figures for that period, subsequently leading to an understatement of the declared
net profit. Besides distorting the income for the period, most of the errors discussed in
this chapter will also impact the business’s financial position in different ways.

For instance, any understatement or overstatement of items in the statement of a profit
or a loss, such as the sales figure, will also affect elements of the financial position.
This is because the net profit figure, which is part of the owner’s equity, is included in
it. Furthermore, the financial position of a business can be influenced by various errors
that distort the information in financial documents, leading to incorrect entries in the
financial database.

Student’s Book Form Five
290

23/06/2024 17:36
ACCOUNTANCY_DUMMY_23 JUNE.indd 290
ACCOUNTANCY_DUMMY_23 JUNE.indd 290 23/06/2024 17:36