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O-LevelAccountingVerification of accounting records7707/21 · May/June 2017 · Q220 Marks

Hong prepared draft financial statements on 31 March 2017 which showed a profit for the year of $9200. After the preparation of the financial statements, Hong discovered the following errors: 1 No entries had been made in the books in respect of $500 which Hong had withdrawn from the bank for his personal use. 2 Goods sold on credit to Tung, $960, had been recorded in the sales journal as $690. 3 Discount received, $150, had been debited to the discount allowed account. 4 A payment of wages, $210, had been posted to the general expenses account. 5 A sale of fixtures and fittings at book value of $800, received by cheque, had been recorded in the sales account. REQUIRED

  1. (a)Prepare the journal entries to correct the errors 1–5. Narratives are not required.[10]
  2. (b)Complete the table showing the effect on the draft profit of correcting each error. Where an error has no effect on profit write 'no effect'. Calculate the revised profit for the year.[6]
  3. (c)(i)Compensating error[2]
  4. (c)(ii)Error of principle[2]

Mark scheme

Marking points from the official mark scheme (May/June 2017). The mark or mark type is shown in brackets.

  1. [1] Drawings Dr 500
  2. [1] Bank Cr 500
  3. [1] Tung Dr 270
  4. [1] Sales Cr 270
  5. [1] Suspense Dr 300
  6. [1] Discount allowed Cr 150
  7. [1] Discount received Dr 150 both
  8. [1] Wages Dr 210
  9. [1] General expenses Cr 210
  10. [1] Sales Dr 800
  11. [1] Disposal / sale of non-current asset Cr 800
  12. [1] No effect (1)
  13. [1] Increase 270 (1)
  14. [1] Increase 300 (1)
  15. [1] No effect (1)
  16. [1] Decrease 800 (1)
  17. [1] Revised profit for the year 8970 (1)of
  18. [1] There are two separate and independent errors in the books (1)
  19. [1] The effect of those errors is that combined they cancel each other out (1)
  20. [1] The entries are made using the correct amount and on the correct side (1)
  21. [1] One of the entries is posted incorrectly to the wrong class of account. (1)

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About this question

Topic
Verification of accounting records, O-Level Accounting (syllabus 7707). Structured question, 20 marks.
Source
O-Level Accounting, May/June 2017 Paper 2 Variant 1, question 2.

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