Rectify the following errors assuming that suspension account was opened. Ascertain the difference in trial balance.
Furniture purchased for ₹ 10,000 wrongly debited to purchase account as ₹ 4,000.
Machinery purchased on credit from Raman for ₹ 20,000 recorded through Purchases Book as ₹ 6,000.
Repairs on machinery ₹ 1,400 debited to Machinery account as ₹ 2,400.
Repairs on overhauling of second hand machinery purchased ₹ 2,000 was debited to Repairs account as ₹ 200.
Sale of old machinery at book value ₹ 3,000 was credited to sales account as ₹ 5,000.
Explanation
The rectification entries are calculated by comparing the correct accounting treatment with the erroneous one provided in the question.
(a) Furniture (Asset) should be debited by ₹10,000. Purchase (Expense) was wrongly debited by ₹4,000. To correct this, we debit Furniture with ₹10,000, credit Purchase with ₹4,000, and the balancing figure of ₹6,000 is credited to the Suspense Account.
(b) Machinery (Asset) should be debited with ₹20,000. Purchase was debited with ₹6,000. To rectify, debit Machinery ₹20,000, credit Purchase ₹6,000. Since it was a credit purchase from Raman recorded wrongly, Raman's account needs a credit of ₹14,000 (20,000 - 6,000) to reflect the correct liability. No Suspense entry arises here.
(c) Repairs (Expense) should be debited by ₹1,400. Machinery (Asset) was wrongly debited by ₹2,400. We credit Machinery with ₹2,400 to remove the error and debit Repairs with ₹1,400. The difference of ₹1,000 is debited to the Suspense Account.
(d) Overhauling second-hand machinery is a capital expenditure, so Machinery should be debited with ₹2,000. Repairs was wrongly debited with ₹200. We debit Machinery ₹2,000, credit Repairs ₹200, and the difference of ₹1,800 is credited to the Suspense Account.
(e) Sale of machinery should credit Machinery with ₹3,000. Sales was wrongly credited with ₹5,000. We debit Sales with ₹5,000 to remove it and credit Machinery with ₹3,000. The difference of ₹2,000 is credited to the Suspense Account.
The Suspense Account totals the credit side (6,000 + 1,800 + 2,000 = 9,800) and debit side (1,000). The balance of ₹8,800 is on the Credit side, representing an excess credit in the Trial Balance.