- Created by: Melonball
- Created on: 22-04-14 13:52
- To act as a notebook for non regular transactions.
- Reduce the risk of fraud by making it difficult for unauthorised transactions to be entered in the accounting system.
- Reduce the risk of errors by listing the transactions that are put into the double entry accounts.
- Ensure entries can be traced back to a source document thus providing an audit trail for non regular transactions.
General journal format
The general journal simply displays what transaction is going on. There is a small narrative which includes the reason for posting the transaction.
Narratives are imortant as they show yourself and others what the transaction was for and acts as a reminder.
It also provides an audit trail for auditors.
A small reference to ledgers is also there, GL, SL or PL
When a journal entry is made to correct an error for example error of omission, the narrative should state that.
'Invoice 4967 omitted from the accounts' This states that the entry is being made to correct the error and the postings are being made accordingly
Trial balance errors: Use of Suspense Account
When a trail balance is prepared, the totals of the two columns should be equal.
Errors can be caused by the following:
- One part of double entry missing
- 2 debits or 2 credits posted instead of one of each#
- adding incorrectly
- missing out an account ETC.
For example the debit side may equal £18500 and the credit £18000
The first step is to look for the error. If it cannot be easily found then a suspense account is used.
Step 1) Add a suspense account in the trial balance
Step 2) Calculate the difference between the two totals of the debit and credit column in this case £500
Step 3) Put this amount in the suspense account to make both the columns add up.
As the credit side was £500 under, the suspense account added the £500 needed to the credit side of the trial balance making the posting to the suspense account a credit so they are postings to the same side
Suspense Account - errors
When an error is found it is dealt with using double entry: one side posted to the account in error and on side posted to the suspense account.
Example: a credit sales invoice for £300 was posted to the trade receivables account but the sales day book was not updated.
This means there was a DEBIT for £300 but not a CREDIT.
To correct this we need to credit the sales account under suspense for £300.
The other side of this double entry means the suspense account is debited by sales with £300
Once all errors are corrected, the suspense account will balance.
The 6 named errors do not need a suspense account to correct them and the accounts can be corrected between themselves.