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Question 9 - 7707/12/M/J/24 | mMCQ.me
O Level Accounting (7707) • 7707/12/M/J/24
Explanation Correcting drawings error with suspense for imbalance
Steps:
Original error: Debited purchases 200 ( o v e r s t a t e d e x p e n s e ) , c r e d i t e d s a l e s 200 (overstated expense), credited sales 200 ( o v ers t a t e d e x p e n se ) , cre d i t e d s a l es 100 p r o f i
Topic: Correction of errors
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t o v e r s t a t e m e n t a n d 100 profit overstatement and 100 p ro f i t o v ers t a t e m e n t an d
Reverse sales overstatement: Debit sales $300 to reduce revenue in income statement.
Reverse purchases overstatement: Credit purchases $200 to reduce expense in income statement. Clear suspense: Credit suspense 100 f o r t h e o r i g i n a l i m b a l a n c e ; t o t a l a d j u s t m e n t r e f l e c t s 100 for the original imbalance; total adjustment reflects 100 f or t h eor i g ina l imba l an ce ; t o t a l a d j u s t m e n t re f l ec t s 300 s a l e s + 300 sales + 300 s a l es +
Income statement adjusted for 300 s a l e s r e v e r s a l ( r e m o v e s f i c t i t i o u s r e v e n u e p e r d o u b l e − e n t r y p r i n c i p l e ) , s u s p e n s e c l e a r s 300 sales reversal (removes fictitious revenue per double-entry principle), suspense clears 300 s a l esre v ers a l ( re m o v es f i c t i t i o u sre v e n u e p er d o u b l e − e n t ry p r in c i pl e ) , s u s p e n sec l e a rs 300 + 300 + 300 +
Why the others are wrong:
A: Involves drawings 200 c o r r e c t l y b u t c r e d i t s s u s p e n s e 200 correctly but credits suspense 200 correc tl y b u t cre d i t ss u s p e n se
C: Adjusts sales 300 b u t c r e d i t s i n c o m e s t a t e m e n t 300 but credits income statement 300 b u t cre d i t s in co m es t a t e m e n t
D: Credits suspense 500 b u t d e b i t s d r a w i n g s 500 but debits drawings 500 b u t d e bi t s d r a w in g s
