A correcting entry is a journal entry that changes the ledger from what was posted to what should have been posted, and nothing else. Write the wrong entry, write the right entry, then post only the difference.
This lesson follows identifying which error needs a suspense account and prepares you for the whole suspense and correcting errors module.
What is the three-line method?
Use the same three lines every time, in this order.
- What was done: write the debit and credit that were actually posted.
- What should have been done: write the correct debit and credit.
- The correction: compare lines 1 and 2, account by account. Reverse what is wrong, add what is missing, and leave alone anything already right.
The check at the end is simple: after your correction, each affected account should show the balance it would have had if the transaction had been posted correctly in the first place.
Worked example 1: an error of principle
Telo Hardware buys office furniture for RM 1,200 and pays by cheque. The bookkeeper debits the purchases account instead of the furniture account.
Line 1, done: debit Purchases RM 1,200, credit Bank RM 1,200.
Line 2, should be: debit Furniture RM 1,200, credit Bank RM 1,200.
Line 3, correction: the bank credit is already right, so leave it. Purchases is debited too much and Furniture too little.
| Account | Debit (RM) | Credit (RM) |
|---|---|---|
| Furniture | 1,200 | |
| Purchases | 1,200 |
Narration: correction of office furniture wrongly debited to purchases.
Check it: Purchases now has a net balance reduced by RM 1,200, Furniture has the RM 1,200 it should have, and Bank is untouched.
Worked example 2: an error of reversal
Telo Hardware receives RM 350 from a customer, Bashir. The bookkeeper debits Bashir’s account and credits the bank by mistake.
Line 1, done: debit Bashir RM 350, credit Bank RM 350.
Line 2, should be: debit Bank RM 350, credit Bashir RM 350.
Line 3, correction: both accounts are on the wrong side. To move each balance to where it belongs, you need twice the amount.
| Account | Debit (RM) | Credit (RM) |
|---|---|---|
| Bank | 700 | |
| Bashir | 700 |
Check it: Bank was credited 350 but should have been debited 350. A debit of 700 moves it from −350 to +350. Bashir moves from a debit of 350 to a credit of 350 by the same logic.
The mistake to watch for
A common slip is to write the correct entry again and forget that the wrong one is still in the ledger.
Mistaken correction for example 1: debit Furniture RM 1,200, credit Bank RM 1,200.
This is the entry that should have been made originally. Posted now, Bank is credited twice and Purchases is still debited, so the ledger is worse than before.
The correction is to ask, account by account, “what is the balance wrong by?” and post only that amount. The bank account was already right, so it must not appear in the correction at all.
Check yourself
Write each correcting entry, then open the answer.
1. A cash purchase of goods for RM 640 was recorded by debiting Cash and crediting Purchases. The right entry was debit Purchases, credit Cash. Write the correction.
Show answer
This is a reversal. Each account is wrong by double: debit Purchases RM 1,280, credit Cash RM 1,280.
2. The owner’s personal electricity bill of RM 160 was paid from the business bank account and debited to Electricity. It should be treated as drawings. Write the correction.
Show answer
The bank credit is right. Electricity is overstated and Drawings is missing. Debit Drawings RM 160, credit Electricity RM 160.
3. A payment of RM 200 to a supplier, Kumar, was credited to Cash but never debited to Kumar’s account. A suspense account was opened for the difference. Write the correction.
Show answer
Credits exceeded debits by RM 200, so suspense carries a debit of RM 200. Post the missing debit and clear suspense: debit Kumar RM 200, credit Suspense RM 200.
Where this leads next
Writing the entry is only half the task, because each correction changes reported profit differently. Continue with calculating the effect on profit, and use the double-entry and ledger trainer to see each side land in its account.
Many students can write the entry from a list but not from a messy description. Our teachers work with that gap in online one-to-one Accounting tuition.