A purchase of furniture for Rs. 20,000 is debited to Furniture Account and credited to the supplier's account, but the amount is entered in the books as Rs. 2,000 in both accounts. Which statement is correct?
Correct answer: B. The trial balance agrees, but Furniture and the supplier are understated
- A. The trial balance disagrees by Rs. 18,000
- B. The trial balance agrees, but Furniture and the supplier are understated
- C. The trial balance agrees, but Furniture is overstated
- D. The trial balance disagrees by Rs. 20,000
Explanation
Both the debit and credit are understated by Rs. 18,000, so the trial balance still agrees. The error remains because the furniture asset and the liability to the supplier are both recorded below their correct amounts.
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About Correction of Errors and Suspense Accounts
Accounting errors are corrected by journal entries after identifying whether the mistake affects one account or both sides of double entry. Suspense accounts temporarily hold an unexplained trial balance difference and must be cleared, while errors of omission, commission, principle, original entry and reversal require different corrections.
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