Paper 2 Answering Technique
Paper 2 Answering Technique: Trial Balance
This guide shows how to answer Paper 2 structured questions on Chapter 6 Trial Balance: reading the question, classifying balances, preparing the Trial Balance along the Accounting Cycle, and linking closing inventory to the financial statements.
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1. Read and understand the question
- Identify the required format: a Trial Balance is prepared AS AT a specific date (not for a period). Write the three-line title: the business name, the words "Trial Balance", and "as at 31 December 20XX".
- Underline each item and its source (Cash Book, Petty Cash Book, or ledger) so that no balance is left out when it is transferred.
- Note whether the question gives a list of balances directly, or requires you to take the balance brought down (bal b/d) from ledger accounts and the Cash Book that you have already balanced off.
- Spot special items: under the periodic inventory system, closing inventory is usually NOT entered in the Trial Balance unless it is given as a ledger balance after adjustment.
2. Classify debit and credit balances accurately
- DEBIT balances: assets, expenses, drawings, opening inventory, sales returns (returns inwards), and carriage/duty on purchases.
- CREDIT balances: liabilities, capital, revenue, sales, purchases returns (returns outwards), and provisions such as the provision for doubtful debts.
- Cash Book balances: the cash and bank columns are normally debit balances (assets); the bank column becomes a credit balance when there is a bank overdraft.
- Petty Cash Book: the unspent imprest (float) balance is an asset, so it is a debit balance.
3. Follow the Accounting Cycle flow
- Follow the sequence: Source Document → Journal → Ledger → balance off the accounts (bal b/d) → transfer the balances to the Trial Balance. An answer that follows this order is easier to check and to mark.
- Make sure the balance brought down at the end of the period is transferred to the correct column of the Trial Balance without switching its side.
- Total both columns; the two totals must be equal. Equal totals show the arithmetical accuracy of the double entry, not absolute correctness.
4. Closing inventory and the inventory card: show working for method marks
- Compute the closing inventory value using the inventory card: balance quantity × cost per unit. Show the working steps so the examiner can award method marks even if the final answer is wrong.
- Record closing inventory through the general journal: Debit Closing Inventory account, Credit Income Statement (Trading account). Give a short narration if required.
- Under the periodic inventory system, closing inventory appears TWICE in the financial statements: as a deduction within cost of sales (Income Statement) and as a current asset (Statement of Financial Position). Do not leave out either one.
- Briefly explain the relationship if the structured question asks: a wrong closing inventory value will misstate gross profit and total current assets at the same time.
5. Errors where the Trial Balance still balances
- Error of omission: a transaction is not recorded in either account at all.
- Error of commission: recorded in the right type of account but the wrong individual (e.g. the wrong debtor).
- Error of principle: recorded in the wrong class of account (e.g. capital expenditure recorded as revenue expenditure).
- Errors of original entry, complete reversal of entries and compensating errors also leave the totals in balance.
- State in your answer that a balanced Trial Balance does NOT guarantee the books are free from error; the error types above can still exist.
6. Time management and final checking
- Allocate time according to the number of items. Do not get stuck too long on one confusing balance; move on and return to it later.
- Check that total debit = total credit before moving on to the financial statements section.
- If it does not balance, find the difference: divide by 2 (a balance may be in the wrong column) or by 9 (figures may be transposed).
- Write the RM label, the full title, and the balances neatly and legibly; tidiness helps the examiner follow your entries.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Premises | 100,000 | |
| Motor vehicle | 40,000 | |
| Opening inventory | 8,000 | |
| Purchases | 60,000 | |
| Carriage inwards | 1,000 | |
| Salaries | 15,000 | |
| Trade receivables | 9,000 | |
| Bank | 12,000 | |
| Cash | 5,000 | |
| Capital | 150,000 | |
| Bank loan | 30,000 | |
| Trade payables | 7,000 | |
| Sales | 60,000 | |
| Commission received | 3,000 | |
| Total | 250,000 | 250,000 |
Opening inventory sits in the debit column; closing inventory is not included under the periodic inventory system.
| Type of account | Normal balance side | Example |
|---|---|---|
| Asset | Debit | Premises, vehicle, bank |
| Expense | Debit | Salaries, rent, carriage inwards |
| Drawings | Debit | Cash/goods drawings |
| Liability | Credit | Payables, loan |
| Capital | Credit | Owner's capital |
| Revenue | Credit | Sales, commission received |
Is closing inventory included in the Trial Balance?
No. Under the periodic inventory system, only opening inventory appears in the Trial Balance. Closing inventory is recorded through the general journal (Debit Closing Inventory, Credit Income Statement) and appears in the Income Statement and the Statement of Financial Position. It is included in the Trial Balance only if the question gives it as a post-adjustment ledger balance.
If my Trial Balance does not balance, what is the first step?
Work out the difference between the debit and credit totals. Divide the difference by 2: if the result equals a balance, that balance may be in the wrong column. If the difference divides evenly by 9, figures may be transposed. Then check for any omitted item and confirm each bal b/d is transferred to the correct side.
Why is it important to show working in Paper 2?
Because method marks are awarded for correct steps even when the final answer is wrong. For example, show the closing inventory calculation (quantity × cost per unit) and the general journal entry; this lets the examiner award marks for the correct method despite a small arithmetical slip.