A corrected profit statement starts from the draft profit and applies each error as one line, plus or minus. Clear the suspense account from the same list, and check that net assets moved by the same amount as profit.
This lesson is the last in SPM Accounting correction of errors. It builds on calculating the effect on profit.
What layout should the statement use?
Keep one column of figures and one label per line. The layout is the same each time:
- Draft net profit as given.
- One line per error that changes profit, with a plus or minus.
- Corrected net profit as the total.
Errors that do not change profit are listed in your working, not in the total.
Worked example: Kedai Buku Sinar
An invented bookshop reported a draft net profit of RM22 000. Its trial balance disagreed, and a debit of RM450 was placed in a suspense account. Three errors were then found.
| Error | Correction | Effect on profit (RM) |
|---|---|---|
| Rent RM500 paid in cash, but only RM50 posted to Rent | Dr Rent 450, Cr Suspense 450 | −450 |
| Credit sale RM1 200 to Dina omitted | Dr Dina 1 200, Cr Sales 1 200 | +1 200 |
| Equipment RM900 debited to Purchases | Dr Equipment 900, Cr Purchases 900 | +900 |
Corrected net profit: 22 000 − 450 + 1 200 + 900 = RM23 650.
The suspense account had a debit of RM450. The correction credits RM450, so the balance is nil and the account closes.
How do I check the answer?
Compare the change in profit with the change in net assets. Profit rose by 23 650 − 22 000 = RM1 650.
Assets moved like this: debtors up RM1 200, equipment up RM900, and the suspense debit removed, which is down RM450. The net movement is 1 200 + 900 − 450 = RM1 650. The two agree, so the working is consistent.
The mistake that leaves a loose end
Students sometimes treat the suspense correction as the whole job and forget to put the rent error in the profit statement. The rent was an expense understated by RM450, so profit falls.
A quick rule helps. If the correcting entry has a line in an expense or income account, it belongs in the profit statement, even when the other line is Suspense.
Check yourself
Draft net profit is RM10 400. Suspense shows a credit of RM60. The cause is a cash receipt of RM60 from a debtor, posted to Cash only.
A purchase of a printer for RM700 was debited to Purchases. Discount of RM40 allowed was omitted from the books.
Find the corrected net profit and the effect on Suspense.
Answer
Cash receipt posted to Cash only: correction is Dr Suspense 60, Cr Debtor 60. No income or expense account, so no effect on profit. Suspense clears to nil.
Printer debited to Purchases: Purchases down 700, so profit +700.
Discount allowed omitted: an expense of 40 is missing, so profit −40.
Corrected net profit: 10 400 + 700 − 40 = RM11 060.
What to study next
Test the full method on the correction of errors practice set. If the direction of an adjustment is uncertain, return to calculating the effect on profit.
If you want a teacher to go through a long correction question with you step by step, see online one-to-one Accounting tuition.