Level: HOTS (KBAT)
HOTS (KBAT) Worked Examples: Trial Balance
These six HOTS examples, from easier to harder, test analysis, error correction and how the trial balance links to closing inventory and the financial statements.
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Example 1: Deciding Debit and Credit Balances
Question
Solution plan
Function of the trial balance: to check the arithmetic accuracy of double entry (total debits = total credits). Normal-balance rule: assets (Premises, Fittings, Debtors, Bank, Cash, Opening inventory), expenses (Salaries), Returns inwards and Drawings = debit balances. Capital, liabilities (Creditors), income (Sales, Interest received) and Returns outwards = credit balances. Note that Interest received is income (credit), while Returns inwards (debit) versus Returns outwards (credit) are easily confused.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Premises | 40,000 | |
| Fittings | 15,000 | |
| Opening inventory | 8,000 | |
| Purchases | 45,000 | |
| Sales | 78,000 | |
| Returns inwards | 2,000 | |
| Returns outwards | 2,000 | |
| Debtors | 9,000 | |
| Creditors | 12,000 | |
| Bank | 10,000 | |
| Cash | 2,000 | |
| Salaries | 7,000 | |
| Interest received | 1,000 | |
| Drawings | 5,000 | |
| Capital | 50,000 | |
| Total | 143,000 | 143,000 |
Answer
The trial balance agrees: total debits RM143,000 = total credits RM143,000. This confirms the arithmetic accuracy of the double entry.
Where marks are usually lost
Example 2: Trial Balance from Cash Book and Petty Cash Book
Question
Solution plan
The Cash Book cash balance is an asset = debit. A bank overdraft means a credit balance in the Cash Book (owing to the bank) = liability = credit. The Petty Cash Book balance is cash in hand = asset = debit. Bank loan = liability = credit. Wages and Rent are expenses = debit.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Cash | 1,200 | |
| Petty Cash Book balance | 300 | |
| Vehicle | 24,000 | |
| Workshop equipment | 8,000 | |
| Opening inventory | 5,000 | |
| Purchases | 28,000 | |
| Sales | 45,000 | |
| Debtors | 6,500 | |
| Creditors | 6,000 | |
| Wages | 8,000 | |
| Rent | 3,000 | |
| Bank overdraft | 3,000 | |
| Bank loan | 10,000 | |
| Capital | 20,000 | |
| Total | 84,000 | 84,000 |
Answer
The trial balance agrees at RM84,000 per column. The bank overdraft of RM3,000 goes in the credit column (liability), while the Petty Cash Book balance of RM300 goes in the debit column (asset).
Where marks are usually lost
Example 3: Errors that Do Not Affect Agreement
Question
Solution plan
An error does not affect agreement when debit and credit remain equal in amount: complete omission, original entry (wrong figure but equal on both sides), commission (wrong account, same class), principle (wrong class of account), complete reversal and compensating errors. A one-sided error (only one account posted) DOES affect agreement.
| No. | Error | Type of Error | Effect on Trial Balance |
|---|---|---|---|
| (a) | RM500 sale not recorded | Error of omission | Does not affect |
| (b) | RM1,500 recorded as RM1,050 in both accounts | Error of original entry | Does not affect |
| (c) | Wages RM800 debited to Rent | Error of commission | Does not affect |
| (d) | Van RM15,000 debited to Purchases | Error of principle | Does not affect |
| (e) | Sale to Bakri posted to Bakar | Error of commission | Does not affect |
| (f) | Over-debit RM200 & over-credit RM200 | Compensating error | Does not affect |
| (g) | Discount allowed RM150 debited only | One-sided error | Affects (does not agree) |
Answer
Errors (a) to (f) do not affect the agreement because debit and credit amounts remain equal. Only error (g), a one-sided error, causes the trial balance to disagree by RM150.
Where marks are usually lost
Example 4: Correcting a Disagreeing Trial Balance
Question
Solution plan
Move Capital (credit, equity) and Returns outwards (credit, contra to purchases) to the credit column. Move Drawings (debit) and Returns inwards (debit, contra to sales) to the debit column. Add Rates RM2,500 as an expense in the debit column. The new column totals must be equal.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Premises | 50,000 | |
| Opening inventory | 7,000 | |
| Purchases | 40,000 | |
| Debtors | 8,000 | |
| Cash | 3,000 | |
| Bank | 4,000 | |
| Salaries | 9,000 | |
| Capital (misplaced) | 45,000 | |
| Returns outwards (misplaced) | 1,000 | |
| Sales | 75,000 | |
| Creditors | 10,000 | |
| Drawings (misplaced) | 6,000 | |
| Returns inwards (misplaced) | 1,500 | |
| Total (does not agree) | 167,000 | 92,500 |
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Premises | 50,000 | |
| Opening inventory | 7,000 | |
| Purchases | 40,000 | |
| Returns inwards | 1,500 | |
| Debtors | 8,000 | |
| Cash | 3,000 | |
| Bank | 4,000 | |
| Salaries | 9,000 | |
| Rates | 2,500 | |
| Drawings | 6,000 | |
| Sales | 75,000 | |
| Returns outwards | 1,000 | |
| Creditors | 10,000 | |
| Capital | 45,000 | |
| Total | 131,000 | 131,000 |
Answer
After moving Capital and Returns outwards to credit, Drawings and Returns inwards to debit, and inserting Rates RM2,500, the corrected trial balance agrees at RM131,000 per column.
Where marks are usually lost
Example 5: Inventory Card and Recording Closing Inventory
Question
Solution plan
On each purchase, compute a new average cost = total value of balance / total units of balance. On each sale, issue at the current average cost. 8 Sep: (2000+2400)/400 = RM11. 22 Sep: (1100+1300)/200 = RM12. Closing inventory = 50 units x RM12 = RM600. Period-end entry for closing inventory: Debit Closing Inventory account, Credit Trading account.
| Date | In (Units) | In (RM/unit) | In (RM) | Out (Units) | Out (RM/unit) | Out (RM) | Bal (Units) | Bal (RM/unit) | Bal (RM) |
|---|---|---|---|---|---|---|---|---|---|
| 1 Sep | 200 | 10 | 2,000 | ||||||
| 8 Sep | 200 | 12 | 2,400 | 400 | 11 | 4,400 | |||
| 15 Sep | 300 | 11 | 3,300 | 100 | 11 | 1,100 | |||
| 22 Sep | 100 | 13 | 1,300 | 200 | 12 | 2,400 | |||
| 28 Sep | 150 | 12 | 1,800 | 50 | 12 | 600 | |||
| Closing inventory | 50 | 12 | 600 |
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Closing Inventory | 600 | |
| Trading Account | 600 | |
| (Recording closing inventory on 30 Sep 2025) | ||
| Total | 600 | 600 |
| Particulars (Debit) | RM | Particulars (Credit) | RM |
|---|---|---|---|
| 30 Sep Trading Account | 600 | 30 Sep Balance c/d | 600 |
| 600 | 600 | ||
| 1 Oct Balance b/d | 600 |
Answer
The closing inventory value is RM600 (50 units at RM12 each). Cost of sales for the period = RM3,300 + RM1,800 = RM5,100. Closing inventory is recorded by debiting the Closing Inventory account and crediting the Trading account with RM600.
Where marks are usually lost
Example 6: Trial Balance, Closing Inventory and Financial Statements
Question
Solution plan
Net sales = 90000 - 2000 = 88000. Net purchases = 50000 - 1500 = 48500. Cost of goods available for sale = 6000 + 48500 + 1000 = 55500. Cost of sales = 55500 - 8000 = 47500. Gross profit = 88000 - 47500 = 40500. Net profit = 40500 - (12000+6000+3000) = 19500. Closing inventory appears as a current asset in the Statement of Financial Position; it does not appear in the trial balance because it is additional information (periodic system).
| Particulars | RM | RM |
|---|---|---|
| Sales | 90,000 | |
| Less: Returns inwards | 2,000 | |
| Net sales | 88,000 | |
| Less: Cost of sales | ||
| Opening inventory | 6,000 | |
| Purchases | 50,000 | |
| Less: Returns outwards | 1,500 | |
| Carriage inwards | 1,000 | |
| Cost of goods available for sale | 55,500 | |
| Less: Closing inventory | 8,000 | |
| Cost of sales | 47,500 | |
| Gross profit | 40,500 | |
| Less: Expenses | ||
| Salaries | 12,000 | |
| Rent | 6,000 | |
| General expenses | 3,000 | |
| Total expenses | 21,000 | |
| Net profit | 19,500 |
| Particulars | RM | RM |
|---|---|---|
| Non-current Assets | ||
| Vehicle | 30,000 | |
| Current Assets | ||
| Closing inventory | 8,000 | |
| Debtors | 10,000 | |
| Bank | 5,500 | |
| Total current assets | 23,500 | |
| Total Assets | 53,500 | |
| Owner's Equity | ||
| Capital | 30,000 | |
| Add: Net profit | 19,500 | |
| 49,500 | ||
| Less: Drawings | 4,000 | |
| Owner's equity | 45,500 | |
| Current Liabilities | ||
| Creditors | 8,000 | |
| Total Equity and Liabilities | 53,500 |
Answer
Gross profit RM40,500 and net profit RM19,500. Total assets RM53,500 = total equity and liabilities RM53,500. If closing inventory is overvalued by RM1,000: cost of sales falls by RM1,000, so gross profit and net profit are overstated by RM1,000 (net profit becomes RM20,500), and current assets are also overstated by RM1,000. The closing inventory value affects both the Income Statement and the Statement of Financial Position.