Suspense account question - URGENT HELP NEEDED

mr10
mr10 Registered Posts: 26
I'd really appreciate someone walking me through this question because I've been struggling for half an hour here. Thanks.

Comments

  • rileyb
    rileyb Registered Posts: 8
    Best way to deal with Suspense question is to model the scenario in some way.

    The question says we made a payment for purchases for £299, so the correct entries in our cash book should have been Purchases £299 Total £299 VAT £0

    The correct double entry for this should have been

    Debit: Purchases £299
    Credit: Bank £299

    As we have undercast the credit side of the Cash Book (i.e put too little in), it creates an imbalance, so it creates a suspense account balance of £270, the £299 we put in our purchases column - the £29 we incorrectly put in our total column. This is a CREDIT amount created in order to balance this account. This is useful for later.

    So what we actually posted in our general ledger is

    Debit Purchases: £29
    Credit Bank: £29

    The purchases column is a memorandum column which provides useful information but doesn't affect the double entry directly, unless this was a credit sale (which it isn't here.)

    So to fix this, we need to do three things.

    1. Remove the incorrect transaction

    Debit: Bank £29
    Credit: Purchases £29

    2. Post the full transaction correctly

    Debit: Purchases £299
    Credit: Bank £299

    Remove the suspense account balance. This is only one posting

    Debit: Suspense £270

    The reason being is there is no dual effect. The suspense balance was created because we made a mistake, and creates a temporary balance in order to make things equal in our account. However, because we have now corrected our mistake, we no longer need our Suspense balance, so to get rid of it, we post an amount on the opposite side , which is equal to our Suspense balance to get it to equal to 0

    Think of a suspense account as a Lego brick which doesn't quite fit, but you use, until you can find the original brick.

    Hope that helps.
  • mr10
    mr10 Registered Posts: 26
    > @rileyb said:
    > Best way to deal with Suspense question is to model the scenario in some way.
    >
    > The question says we made a payment for purchases for £299, so the correct entries in our cash book should have been Purchases £299 Total £299 VAT £0
    >
    > The correct double entry for this should have been
    >
    > Debit: Purchases £299
    > Credit: Bank £299
    >
    > As we have undercast the credit side of the Cash Book (i.e put too little in), it creates an imbalance, so it creates a suspense account balance of £270, the £299 we put in our purchases column - the £29 we incorrectly put in our total column. This is a CREDIT amount created in order to balance this account. This is useful for later.
    >
    > So what we actually posted in our general ledger is
    >
    > Debit Purchases: £29
    > Credit Bank: £29
    >
    > The purchases column is a memorandum column which provides useful information but doesn't affect the double entry directly, unless this was a credit sale (which it isn't here.)
    >
    > So to fix this, we need to do three things.
    >
    > 1. Remove the incorrect transaction
    >
    > Debit: Bank £29
    > Credit: Purchases £29
    >
    > 2. Post the full transaction correctly
    >
    > Debit: Purchases £299
    > Credit: Bank £299
    >
    > Remove the suspense account balance. This is only one posting
    >
    > Debit: Suspense £270
    >
    > The reason being is there is no dual effect. The suspense balance was created because we made a mistake, and creates a temporary balance in order to make things equal in our account. However, because we have now corrected our mistake, we no longer need our Suspense balance, so to get rid of it, we post an amount on the opposite side , which is equal to our Suspense balance to get it to equal to 0
    >
    > Think of a suspense account as a Lego brick which doesn't quite fit, but you use, until you can find the original brick.
    >
    > Hope that helps.

    This was a massive help, thanks so much.
  • Pian32
    Pian32 Registered Posts: 474 Dedicated contributor 🦉
    edited August 2020
    @mr10

    1. The effective entry made was:

    Debit - Purchases - £299
    Credit - Bank - £29
    Credit - Suspense £270

    2. To undo the entry

    Debit - Bank - £29
    Debit - Suspense - £270
    Credit - Purchases - £299

    3. Put in the correct entry

    Debit - Purchases - £299
    Credit - Bank - £299

    The nature of the double entry method means there is ALWAYS a second entry; for the answer above this is what happens.

    If we only remove the £29 from the purchases then you'd end up with:

    £299 (original) - £29 (correction) + £299 (correct amount) = £569 which is £270 too large still. Meaning the missing entry to pair with the suspense is

    Credit- Purchases £270

    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Passed Dec 2020
    F6- Passed Sep 2020
    F7- Passed June 2021
    F8 - Passed Sep 2021
    F9 - Passed June 2021

    SBL -
    SBR - Passed Mar 22
    ATX - Passed Dec 21
    APM - Passed June 22
  • rileyb
    rileyb Registered Posts: 8
    Just to say the Purchases column isn't a memorandum column, but an analysis column. It basically breaks down the transaction that was posted to the Bank or Cash Account and would be part of the double entry. Credit transactions would be in the Day Books. Sorry for the earlier error.
  • PeterC
    PeterC Registered, Tutor Posts: 245 Dedicated contributor 🦉
    @mr10 looks good. If you would like some more general guidance, try https://drive.google.com/file/d/1sSuBFryxnhktkH1iU1LgvP1f3JqZR0sT/view?usp=sharing
  • roy ramphul
    roy ramphul Registered Posts: 38 Regular contributor ⭐
    Because the Bank Account is incorrect you could do it this way
    1 Reverse the incorrect entry amount for Bank
    Debit Bank 29
    Credit Suspense 29

    2 Entering the correct amount for the Bank Account
    Debit Suspense 299
    Credit Bank 299

    Effect Debit Suspense 270
    Credit Bank 270
  • Pian32
    Pian32 Registered Posts: 474 Dedicated contributor 🦉
    I agree with what roy has said above however in an exam I suspect you'd lose marks for doing it that way.
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Passed Dec 2020
    F6- Passed Sep 2020
    F7- Passed June 2021
    F8 - Passed Sep 2021
    F9 - Passed June 2021

    SBL -
    SBR - Passed Mar 22
    ATX - Passed Dec 21
    APM - Passed June 22
  • BBarrett
    BBarrett Registered Posts: 9 New contributor 🐸
    Pian32 said:

    @mr10

    Can you sit my exams please lols .good explanation of suspense accounts




    1. The effective entry made was:

    Debit - Purchases - £299
    Credit - Bank - £29
    Credit - Suspense £270

    2. To undo the entry

    Debit - Bank - £29
    Debit - Suspense - £270
    Credit - Purchases - £299

    3. Put in the correct entry

    Debit - Purchases - £299
    Credit - Bank - £299

    The nature of the double entry method means there is ALWAYS a second entry; for the answer above this is what happens.

    If we only remove the £29 from the purchases then you'd end up with:

    £299 (original) - £29 (correction) + £299 (correct amount) = £569 which is £270 too large still. Meaning the missing entry to pair with the suspense is

    Credit- Purchases £270

  • Pian32
    Pian32 Registered Posts: 474 Dedicated contributor 🦉
    @BBarrett

    I've got enough exams of my own to do =) . Thank you for the compliment I'm always happy to try and help when I'm on the forums so any questions feel free to ask.
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Passed Dec 2020
    F6- Passed Sep 2020
    F7- Passed June 2021
    F8 - Passed Sep 2021
    F9 - Passed June 2021

    SBL -
    SBR - Passed Mar 22
    ATX - Passed Dec 21
    APM - Passed June 22
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