Using Nominal Ledgers Concerning Suspense A/c correcting errors

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:32AM in AAT student discussion
I was given a question in College by concering several transcation concerning erors and suspense a/c.

one question said in the general ledger.

correct the following errors

A sale on credit to H Shah for £320 was wrongly entered in M Shah's account. All other entries were correct. A sales Ledger control Account was in use.

I answered dr H Shah £320
cr M Shah's £320

and wrote wrong posting to M Shah's Account no effect in the general ledger error of commission.

Appartently the lecturer said that because the company uses a sales ledger control account, you do not correct any errors in the journal which involve purchases ledger or sales ledger transaction.

If you did that in the exam, you will lose marks.

I know what he is trying to say, but I feel that we should not be penilised for correcting in the journal even though the respective control account was in use.

I was wondering if anyone knows anything about this.


Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    I assume your jounal entries were to correct the sales ledger subsidiary accounts? If so, I would say what you've done is correct. Control accounts themselves shouldn't appear in the journals, only the subsidiary accounts.

    There's no need to even touch the sales ledger control account since the sale is still there, you're just "giving back" to the original incorrect customer account and "taking away" from the new and correct one.

    Maybe he just wants you to do it the AAT way and reverse the original error in full double entry style including the sales account transaction?

    Robert
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    Apparently I should not correct anything and leave this transaction alone.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    Hmmm...

    The way we were taught it was that you don't use the journal to correct errors in the subsidiary ledgers, essentially the opposite of what you're saying Robert. Maybe that's just the 'AAT way' but it's that which is what Roy's tutor was getting at.

    And not correcting errors in control accounts using the journal is a new one on me.

    Chris

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    Exactly what my tutor said but even so I think one should not be penilised for posting a correction of journal entry which involves adjusting the subsidary ledgers. Because we need to correct the person account even though there is no effect in the final accounts.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    I'm lost here! Maybe I'm just interpreting Roy's original post wrong?

    I am saying you do use the journal to correct the subsidiary accounts otherwise how else would you adjust the mispost to the wrong customer account? Are you saying I shouldn't? How would you change it then? You can't leave it as it is since it will show up in an aged debtors analysis further down the line and you will chase the wrong customer. The control account shouldn't appear in this journal as the totals figure remains unchanged.

    Debit correct customer account
    Credit incorrect customer account

    Essentially, I agree with Roy's original answer so what exactly is the problem here? What was the lecturers 'correct' answer to this question?

    Of course, an invoicing error would be different with a credit note issued etc...

    Robert
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    Maybe I didn't make myself clear. I wasn't suggesting that the error in the sales ledger wasn't corrected, but rather that as the error doesn't affect the main ledger you wouldn't make a journal entry for this correction. Subsidiary ledgers being memoranda aren't part of the double entry system and don't require it.

    If errors in the subsiduary ledger do effect the control account then you would use the journal as the that account is part of the double entry system.

    There's been a couple of previous discussions of this issue which may or may not clarify matters..

    http://www.aat.org.uk/forums/posts/list/9999.page
    http://www.aat.org.uk/forums/posts/list/4802.page

    Chris

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    So I gather that if a similar question arises in the skill test, I would leave the question alone.

    I.e ignore this particular transaction.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    As far as im concerned, the error would need correcting so never ignore it. I think people are saying that no formal Journal need be raised as it is not part of the double entry system, even so the error needs to be corrected and writing a journal entry for the sub ledger is probably the best way to write it up in a skills test?

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    I agree
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    To tie up this thread, and having now managed to retrieve my old FRA book from work, the fully correct 'AAT world' journal entry for this - with the extremely important narrative - would have been;

    Debit sales ledger control £320
    Credit sales ledger control £320

    "Correction of mispost in the subsidiary ledgers as follows;"
    Debit H Shah £320
    Credit M Shah £320

    I say we were that all right in the way we would have originally treated it - apart from the leaving it alone answer which would have been clearly wrong!

    Robert
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    I fully understand what you are saying and agree that you should correct the entry.

    But it was my lecturer who had said to leave the transaction alone.

    In that case I would just correct the persons account in the sales ledger that is if the company has a sales ledger. If not I would therefore have to leave it alone as there are no customers accounts set up.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    But it was my lecturer who had said to leave the transaction alone
    I think your lecturer is right.
    as far as I understand is that if you correct the control account by Debit sales ledger control £320
    Credit sales ledger control £320
    It does not mean anything (CR & DR with the same a/c).
    The main reason here is to help you to recognise which errors effect which a/c and how to correct the errors.
    Not every correction of errors has to use the journal.
    It depends on what type of errors you are going to correct.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    Few things to be said to clear this up

    1. The error does not effect the double entry system so the control accounts need not be touched
    2. The error must be corrected or the wrong person will be chased for the money
    3. The lecturer who said to ignore the mistake needs to retake their exams

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    I fully agree with you expect for the fact that my lecturer has to retake the exams seems very harsh since I find his teaching methods being absolutely great throughout this course.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    Agreed that that may be a bit harsh Karlb, but the lecturers advice to ignore the transaction is undoubtedly negligent. You simply cannot ignore this mispost under any circumstances, especially since you are - eventually - knowingly and negligently going to chase the wrong customer for the money!

    The journal answer I gave earlier was cribbed from the Osborne AAT text book and shows the format this mispost should take i.e. the crucial narrative pointing to the sub accounts. Ignoring this in an exam situation would absolutely lose you marks, since you must demonstrate your acknowledgement of the error to the marker even if it doesn't affect the overall control account figure.

    Regards,

    Robert
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    I'm not certain that Roy's lecturere was saying ignore the error. Rather, that subsidiary ledger errors shouldn't be corrected through the journal.

    In my Osbourne textbook subsidiary ledger errors are not corrected in the journal. There is a reference in the narrative to the correction in the subsidiary ledger when a correction is made to the control account but the subsidiary ledger error is not corrected via the journal. If you think about it for a moment you can see just why; if you do then the journal will not balance. Remember subsidiary ledgers are not part of the double-entry system and amounts in the subsidiary ledger are actually entered three time - once in the sub ledger, once in the control a/c and once in the correponding double entry

    An example from Osbourne FRA textbook might help(p205)

    A payment by cheque of £50 to a creditor S. Wright has been debited in the cash book and credited to the PLC and Wright's account.

    To correct the reversal of entries:

    Dr PLC £50
    Cr Bank £50
    [Take out the error]
    Dr PLC £50
    Cr Bank £ 50
    [and put the £50 in on the right side]

    Now, to correct Wright's account we need to debit it with £100. Clearly, that correction can't go in the journal as it will no longer balance.

    Hope that makes sense.

    Chris

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Using Nominal Ledgers Concerning Suspense A/c correcting errors

    Yes but I have come accross a question where there was a missposting to the wrong person's account from other accounting examinations and I had to correct it through the journal.

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