Practice Questions
Practice Questions: Trial Balance
This practice set tests the function and preparation of the Trial Balance, the errors that still allow it to balance, and the relationship between the Trial Balance, closing inventory and the financial statements. Attempt each question before checking the concise answers.
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How to Practise Effectively
- Begin every exercise by classifying each balance: assets and expenses go in the debit column; liabilities, capital and revenue go in the credit column. Wrong classification is the main reason a Trial Balance fails to balance.
- Memorise the tricky items: Drawings on debit, Capital on credit, Discount allowed (expense) on debit and Discount received (income) on credit. Opening inventory is on debit, but closing inventory does NOT appear in the Trial Balance under the periodic system.
- Practise preparing the Trial Balance through the full Accounting Cycle: from Source Documents, to books of prime entry, to the Cash Book and Petty Cash Book, to the ledger, and finally transferring the debit and credit balances into the Trial Balance.
- After completing it manually, recheck using ICT applications (electronic spreadsheets) so that both column totals are computed automatically and arithmetic errors are caught immediately.
Avoid Common Mistakes
- Never assume 'balanced means correct'. Six errors still leave the Trial Balance balanced: errors of omission, commission, principle, original entry, complete reversal and compensating errors. Understand the meaning of each.
- For the periodic inventory system, remember that closing inventory is determined by a stock-take at period end and recorded through the general journal, not taken directly from the Trial Balance.
- Before transferring balances, carefully compute the closing (balance carried down) figure of each ledger account so the value carried into the Trial Balance is accurate.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Premises | 40,000 | |
| Motor vehicle | 20,000 | |
| Opening inventory | 8,000 | |
| Purchases | 30,000 | |
| Debtors | 9,000 | |
| Cash | 3,000 | |
| Bank | 7,000 | |
| Rent paid | 2,000 | |
| Salaries | 5,000 | |
| Drawings | 6,000 | |
| Capital | 43,000 | |
| Sales | 60,000 | |
| Creditors | 12,000 | |
| Bank loan | 15,000 | |
| Total | 130,000 | 130,000 |
Only opening inventory is listed; closing inventory is not included under the periodic system.
| Date | Details | Received (units) | Issued (units) | Balance (units) | Balance Value (RM) |
|---|---|---|---|---|---|
| 1 Jan | Opening balance | 50 | 500 | ||
| 5 Jan | Purchases | 100 | 150 | 1,700 | |
| 10 Jan | Sales | 80 | 70 | 840 | |
| 15 Jan | Purchases | 60 | 130 | 1,620 | |
| 20 Jan | Sales | 90 | 40 | 520 |
Balance value computed using FIFO cost; closing inventory 40 units = RM520.
| Details | Debit (RM) | Credit (RM) |
|---|---|---|
| Closing inventory | 520 | |
| Income Statement (Trading Account) | 520 | |
| (To record the value of closing inventory at period end) | ||
| Total | 520 | 520 |
Practice Questions
Question 1
Question 1 (Concept): Explain three functions of the Trial Balance in the accounting system.
Answer
1. To check the arithmetical accuracy of double-entry records: total debit balances must equal total credit balances.
2. To collect all ledger balances in one list, making it easier to prepare the Income Statement and Statement of Financial Position.
3. To help detect certain errors (e.g. arithmetic errors or a balance placed in the wrong column) before the financial statements are prepared.
Question 2
Question 2 (Preparation): The following balances were extracted from the ledger of Seri Maju Enterprise as at 31 December 2024 (RM): Premises 40,000; Motor vehicle 20,000; Opening inventory 8,000; Purchases 30,000; Debtors 9,000; Cash 3,000; Bank 7,000; Rent paid 2,000; Salaries 5,000; Drawings 6,000; Capital 43,000; Sales 60,000; Creditors 12,000; Bank loan 15,000. Prepare the Trial Balance.
Answer
See the table 'Trial Balance of Seri Maju Enterprise' below.
Debit column (assets + expenses): Premises, Motor vehicle, Opening inventory, Purchases, Debtors, Cash, Bank, Rent paid, Salaries, Drawings = RM130,000.
Credit column (liabilities + capital + revenue): Capital, Sales, Creditors, Bank loan = RM130,000.
Both columns balance at RM130,000. Note that only opening inventory is listed; closing inventory is not included.
Question 3
Question 3 (Errors): State and explain four types of errors that still allow the Trial Balance to balance.
Answer
1. Error of omission: a transaction is not recorded in any account at all, so both debit and credit are missing.
2. Error of commission: the correct amount is posted to the wrong account but within the same class (e.g. debtor Ali recorded in debtor Abu's account).
3. Error of principle: an amount is posted to the wrong class of account (e.g. purchase of an asset recorded as an expense).
4. Error of original entry: a wrong amount is entered in the original document/book, then posted to both accounts (debit and credit) with the same wrong amount.
(Others: complete reversal of entries and compensating errors.)
Question 4
Question 4 (Inventory): Explain the meaning of inventory, and distinguish between the periodic inventory system and the perpetual inventory system.
Answer
Meaning of inventory: trading goods bought or produced for resale that remain unsold at the end of the financial period.
Periodic inventory system: the inventory value is determined only at period end through a physical stock-take. Records are not updated each time a sale occurs.
Perpetual inventory system: every receipt and issue of stock is recorded immediately on an inventory card, so the inventory balance is known at any point in time.
Question 5
Question 5 (Inventory Card): Jaya Beg Enterprise uses the First-In-First-Out (FIFO) method. January transactions: 1 Jan opening balance 50 units @ RM10; 5 Jan bought 100 units @ RM12; 10 Jan sold 80 units; 15 Jan bought 60 units @ RM13; 20 Jan sold 90 units. Calculate the value of closing inventory.
Answer
Using FIFO (see 'Inventory Card' below):
10 Jan sold 80 units = 50 @ RM10 + 30 @ RM12; balance = 70 units @ RM12 = RM840.
15 Jan bought 60 @ RM13; balance = 70 @ RM12 + 60 @ RM13.
20 Jan sold 90 units = 70 @ RM12 + 20 @ RM13; balance = 40 units @ RM13.
Closing inventory = 40 units x RM13 = RM520.
Question 6
Question 6 (Journal & Ledger): Using the closing inventory value of RM520 from Question 5, record the closing inventory in the general journal and show the postings in the Inventory Account (ledger) as at 31 December.
Answer
General Journal (see the table 'General Journal, Closing Inventory'):
Debit: Closing inventory RM520
Credit: Income Statement (Trading Account) RM520
Narration: To record the value of closing inventory at period end.
Ledger, Inventory Account:
Debit side: 31 Dec Income Statement RM520 (closing inventory balance brought in as an asset).
This RM520 balance is brought down (b/d) and becomes the opening inventory for the next period.
Question 7
Question 7 (Relationship): Under the periodic inventory system, explain how closing inventory is reported in the Income Statement and the Statement of Financial Position, and its relationship with the Trial Balance.
Answer
Under the periodic inventory system, only opening inventory appears in the Trial Balance (in the debit column). Closing inventory is NOT in the Trial Balance because it is determined only by a stock-take at period end and then given as additional information (a note).
In the Income Statement: closing inventory is deducted in the Cost of Sales calculation (Opening inventory + Net purchases - Closing inventory = Cost of Sales). This lowers the cost of sales and raises gross profit.
In the Statement of Financial Position: closing inventory is reported as a Current Asset.
Thus a single closing inventory figure is used in two places: once to compute profit and once as an asset.