Level: HOTS (KBAT)
HOTS (KBAT) Worked Examples: Ledger
Six graded worked examples that stress higher-order thinking in the Ledger topic: account classification and normal balances, double entry and balancing, control accounts, minority balances, and reconstructing missing figures.
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Example 1: Account Classification & Normal Balance
Question
Solution plan
Real Accounts record tangible/intangible assets whose balances are carried to the next period (Furniture, Vehicle, Inventory); their normal balance is on the debit side. Nominal Accounts record expenses and revenues closed off to the Profit and Loss Account (Rent, Utilities = expenses; Commission received, Discount received = revenues). Rule: assets and expenses increase on the debit side (debit normal balance); revenues increase on the credit side (credit normal balance).
| Account | Account Group | Type of Account | Normal Balance |
|---|---|---|---|
| Furniture | Real Account | Asset | Debit |
| Motor vehicle | Real Account | Asset | Debit |
| Inventory | Real Account | Asset | Debit |
| Rent paid | Nominal Account | Expense | Debit |
| Utilities expense | Nominal Account | Expense | Debit |
| Commission received | Nominal Account | Revenue | Credit |
| Discount received | Nominal Account | Revenue | Credit |
Answer
Real Accounts (debit balance): Furniture, Vehicle, Inventory. Nominal expense accounts (debit balance): Rent paid, Utilities. Nominal revenue accounts (credit balance): Commission received, Discount received.
Where marks are usually lost
Example 2: Double Entry & Balancing the Cash Account
Question
Solution plan
The Cash Account is an asset account: it increases on the debit side and decreases on the credit side. Debit: Capital (start-up), cash sales, commission received. Credit: cash purchases, rent, drawings. Drawings are not an expense but they reduce cash (and equity). Total both sides; the difference is the balance c/d, which is then brought down as the balance b/d.
| Date | Particulars | RM (Dr) | Date | Particulars | RM (Cr) |
|---|---|---|---|---|---|
| May 1 | Capital | 20,000 | May 3 | Purchases | 4,500 |
| May 8 | Sales | 3,200 | May 15 | Rent | 800 |
| May 28 | Commission | 350 | May 20 | Drawings | 600 |
| May 31 | Balance c/d | 17,650 | |||
| 23,550 | 23,550 | ||||
| Jun 1 | Balance b/d | 17,650 |
Answer
Both sides total RM23,550. The Cash balance b/d on 1 June is RM17,650 (a debit balance), representing cash in hand remaining at the end of May.
Where marks are usually lost
Example 3: Receivables Control Account
Question
Solution plan
The normal receivables balance is a debit. Items that increase debtors (debit): balance b/d, credit sales, dishonoured cheque (debt reinstated), discount cancelled, overdue interest. Items that decrease debtors (credit): bank receipts, discount allowed, sales returns, bad debts. Balance c/d = total debit − total credit before the balance.
| Date | Particulars | RM (Dr) | Date | Particulars | RM (Cr) |
|---|---|---|---|---|---|
| Jun 1 | Balance b/d | 18,500 | Jun 30 | Bank (receipts) | 38,600 |
| Jun 30 | Credit sales | 42,000 | Jun 30 | Discount allowed | 1,150 |
| Jun 30 | Bank (dishonoured cheque) | 1,400 | Jun 30 | Sales returns | 2,300 |
| Jun 30 | Discount cancelled | 60 | Jun 30 | Bad debts | 800 |
| Jun 30 | Interest on overdue account | 250 | Jun 30 | Balance c/d | 19,360 |
| 62,210 | 62,210 | ||||
| Jul 1 | Balance b/d | 19,360 |
Answer
Both sides total RM62,210. The receivables balance b/d on 1 July is RM19,360 (a debit balance), the amount debtors owe the business at the end of June.
Where marks are usually lost
Example 4: Payables Control Account & Contra Entry
Question
Solution plan
The normal payables balance is a credit. Items that increase creditors (credit): balance b/d, credit purchases. Items that decrease creditors (debit): bank payments, discount received, purchases returns, contra entry. A contra arises when the same person is both a debtor and a creditor: the smaller amount is set off so only the net balance remains, avoiding paying and receiving money at the same time.
| Date | Particulars | RM (Dr) | Date | Particulars | RM (Cr) |
|---|---|---|---|---|---|
| Jul 31 | Bank (payments) | 28,200 | Jul 1 | Balance b/d | 24,000 |
| Jul 31 | Discount received | 940 | Jul 31 | Credit purchases | 31,500 |
| Jul 31 | Purchases returns | 1,600 | |||
| Jul 31 | Receivables Control (contra) | 1,200 | |||
| Jul 31 | Balance c/d | 23,560 | |||
| 55,500 | 55,500 | ||||
| Aug 1 | Balance b/d | 23,560 |
Answer
Both sides total RM55,500. The payables balance b/d on 1 August is RM23,560 (a credit balance), the amount the business owes its creditors. The RM1,200 Contra Entry sets off what the business owes Encik Rahim against what he owes the business, leaving only the net balance.
Where marks are usually lost
Example 5: Minority Balance in a Control Account
Question
Solution plan
Most receivables balances are debit, but a minority credit balance can arise when a customer overpays, pays in advance, or returns goods after paying in full. Arrange: debit b/d + credit sales + credit c/d on the debit side; credit b/d + receipts + discount allowed + sales returns + bad debts + debit c/d on the credit side. The debit c/d is found as the balancing figure.
| Date | Particulars | RM (Dr) | Date | Particulars | RM (Cr) |
|---|---|---|---|---|---|
| Aug 1 | Balance b/d | 15,200 | Aug 1 | Balance b/d (credit) | 300 |
| Aug 31 | Credit sales | 28,000 | Aug 31 | Bank (receipts) | 26,400 |
| Aug 31 | Balance c/d (credit) | 500 | Aug 31 | Discount allowed | 720 |
| Aug 31 | Sales returns | 1,100 | |||
| Aug 31 | Bad debts | 450 | |||
| Aug 31 | Balance c/d (debit) | 14,730 | |||
| 43,700 | 43,700 | ||||
| Sep 1 | Balance b/d (debit) | 14,730 | Sep 1 | Balance b/d (credit) | 500 |
Answer
Both sides total RM43,700. The majority (debit) balance b/d is RM14,730, the amount still owed by debtors. The minority (credit) balance b/d is RM500, customers' advance payments or overpayments, which are a liability of the business.
Where marks are usually lost
Example 6: Reconstructing Missing Credit Sales
Question
Solution plan
Build the Receivables Control Account leaving credit sales as the unknown (X). Known credit side: receipts + discount allowed + sales returns + bad debts + balance c/d = RM73,900. Since total debit = total credit, balance b/d (21,000) + X + dishonoured cheque (900) = 73,900. Solve for X. The dishonoured cheque sits on the debit side because it reinstates the debtor.
| Date | Particulars | RM (Dr) | Date | Particulars | RM (Cr) |
|---|---|---|---|---|---|
| Sep 1 | Balance b/d | 21,000 | Sep 30 | Bank (receipts) | 45,300 |
| Sep 30 | Credit sales (balancing figure) | 52,000 | Sep 30 | Discount allowed | 1,300 |
| Sep 30 | Bank (dishonoured cheque) | 900 | Sep 30 | Sales returns | 1,900 |
| Sep 30 | Bad debts | 650 | |||
| Sep 30 | Balance c/d | 24,750 | |||
| 73,900 | 73,900 | ||||
| Oct 1 | Balance b/d | 24,750 |
Answer
Both sides total RM73,900. September credit sales = RM73,900 − RM21,000 − RM900 = RM52,000. If no Control Account is prepared, there is no independent check on the subsidiary ledger, so errors and fraud are hard to detect, and a missing figure such as credit sales cannot be quickly reconstructed.