Level: Intermediate
Intermediate Worked Examples: Trial Balance
Six graded examples on preparing a Trial Balance from the ledger and Cash Book, errors that do not stop it from agreeing, valuing closing inventory with an inventory card, and linking the Trial Balance and closing inventory to the Financial Statements.
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Example 1: Preparing a Trial Balance from ledger balances
Question
Solution plan
Classify each account: assets (cash, bank, equipment, debtors), expenses (purchases, rent, salaries) and drawings carry debit balances. Capital, liabilities (creditors) and revenue (sales) carry credit balances. Post each balance to the correct column, then total both columns; the totals must agree.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Cash | 8,000 | |
| Bank | 15,000 | |
| Office equipment | 20,000 | |
| Purchases | 30,000 | |
| Debtors | 10,000 | |
| Rent | 6,000 | |
| Salaries | 8,000 | |
| Drawings | 5,000 | |
| Capital | 45,000 | |
| Sales | 45,000 | |
| Creditors | 12,000 | |
| Total | 102,000 | 102,000 |
Answer
The Trial Balance agrees: the debit column total of RM102,000 equals the credit column total of RM102,000, showing the double entries are arithmetically correct.
Where marks are usually lost
Example 2: Trial Balance from the Cash Book and ledger
Question
Solution plan
Post the debit balances of Cash and Bank straight from the Cash Book to the debit column. Returns inwards carries a debit balance (it reduces sales) while returns outwards carries a credit balance (it reduces purchases). The bank loan is a liability (credit). Classify the rest and total.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Cash | 3,500 | |
| Bank | 22,000 | |
| Workshop equipment | 40,000 | |
| Vehicle | 35,000 | |
| Purchases | 25,000 | |
| Returns inwards | 1,500 | |
| Debtors | 8,000 | |
| Wages | 9,000 | |
| General expenses | 2,500 | |
| Drawings | 4,000 | |
| Capital | 54,500 | |
| Sales | 60,000 | |
| Returns outwards | 1,000 | |
| Creditors | 15,000 | |
| Bank loan | 20,000 | |
| Total | 150,500 | 150,500 |
Answer
The Trial Balance agrees at RM150,500 on both columns. The Cash and Bank balances from the Cash Book are listed together with the other ledger balances.
Where marks are usually lost
Example 3: Trial Balance following the Accounting Cycle
Question
Solution plan
Follow the cycle: source documents → journals → ledger → Trial Balance. Watch the easily confused pairs: discount allowed (expense, debit) versus discount received (income, credit); returns inwards (debit) versus returns outwards (credit); rent received is income (credit). Opening inventory and carriage inwards carry debit balances.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Premises | 60,000 | |
| Furniture | 15,000 | |
| Opening inventory | 12,000 | |
| Purchases | 48,000 | |
| Returns inwards | 2,000 | |
| Discount allowed | 800 | |
| Carriage inwards | 1,200 | |
| Debtors | 14,000 | |
| Bank | 25,000 | |
| Cash | 3,000 | |
| Salaries | 10,000 | |
| Insurance | 1,400 | |
| Drawings | 6,000 | |
| Capital | 79,700 | |
| Sales | 95,000 | |
| Returns outwards | 1,500 | |
| Discount received | 600 | |
| Creditors | 18,000 | |
| Rent received | 3,600 | |
| Total | 198,400 | 198,400 |
Answer
The Trial Balance agrees at RM198,400 on both the debit and credit columns. All the easily confused income and expense accounts have been classified correctly.
Where marks are usually lost
Example 4: Errors that do not affect the balance
Question
Solution plan
Part (a): classify and total as usual. Part (b): agreement only proves total debits equal total credits; it does not guarantee there are no errors. List six errors that keep the balance because the debit and credit effects remain equal.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Vehicle | 18,000 | |
| Purchases | 22,000 | |
| Debtors | 6,000 | |
| Bank | 12,000 | |
| Rent | 4,000 | |
| Salaries | 7,000 | |
| Drawings | 2,000 | |
| Capital | 22,000 | |
| Sales | 40,000 | |
| Creditors | 9,000 | |
| Total | 71,000 | 71,000 |
| Type of error | Explanation |
|---|---|
| Error of omission | A transaction is left out of the accounts completely. |
| Error of commission | The correct amount is posted to the wrong account of the same class, e.g. the wrong debtor. |
| Error of principle | Posted to the wrong class of account, e.g. an asset purchase recorded as an expense. |
| Error of original entry | A wrong amount is entered in both the debit and credit accounts. |
| Complete reversal of entries | The account to be debited is credited and vice versa. |
| Compensating errors | Two or more errors whose effects cancel each other out in value. |
Answer
(a) The Trial Balance agrees at RM71,000. (b) The six errors that do not affect agreement are errors of omission, commission, principle, original entry, complete reversal and compensating errors. All keep total debits equal to total credits.
Where marks are usually lost
Example 5: Inventory card and recording closing inventory
Question
Solution plan
FIFO: the earliest units in are treated as sold first. 12 Mar sell 120: 100 at RM2.00 (RM200) + 20 at RM2.20 (RM44) = RM244. Balance 130 at RM2.20 (RM286). 20 Mar buy 100 at RM2.50. 25 Mar sell 130: 130 at RM2.20 = RM286. Closing balance 100 at RM2.50 = RM250. Record closing inventory: debit the Closing inventory account, credit the Income Statement.
| Date | Particulars | In (units) | In (RM) | Out (units) | Out (RM) | Balance (units) | Balance (RM) |
|---|---|---|---|---|---|---|---|
| 1 Mar | Opening balance | 100 | 200 | ||||
| 5 Mar | Purchase | 150 | 330 | 250 | 530 | ||
| 12 Mar | Sale | 120 | 244 | 130 | 286 | ||
| 20 Mar | Purchase | 100 | 250 | 230 | 536 | ||
| 25 Mar | Sale | 130 | 286 | 100 | 250 |
| Date | Particulars | Debit (RM) | Credit (RM) |
|---|---|---|---|
| 31 Mar | Closing inventory | 250 | |
| Income Statement | 250 | ||
| (Recording the closing inventory value) | |||
| Total | 250 | 250 |
| Date | Particulars | RM | Date | Particulars | RM |
|---|---|---|---|---|---|
| 31 Mar | Income Statement | 250 | 31 Mar | Balance c/d | 250 |
| 250 | 250 | ||||
| 1 Apr | Balance b/d | 250 |
Answer
The closing inventory is 100 units valued at RM250. Journal entry: debit Closing inventory RM250, credit Income Statement RM250. The Closing Inventory Account shows a balance b/d of RM250 carried into the next period.
Where marks are usually lost
Example 6: Linking the Trial Balance, closing inventory and Financial Statements
Question
Solution plan
Under the periodic system, closing inventory is not in the Trial Balance; it is used twice: (1) deducted in the cost of sales on the Income Statement, and (2) shown as a current asset on the Statement of Financial Position. Cost of sales = opening inventory + net purchases (purchases - returns outwards + carriage inwards) - closing inventory. Gross profit = net sales - cost of sales. Net profit is transferred to equity; drawings are deducted from equity.
| Particulars | RM | RM |
|---|---|---|
| Sales | 120,000 | |
| Less: Returns inwards | 2,000 | |
| Net sales | 118,000 | |
| Less: Cost of sales | ||
| Opening inventory | 10,000 | |
| Purchases | 55,000 | |
| Less: Returns outwards | 1,500 | |
| Add: Carriage inwards | 1,000 | |
| Net cost of purchases | 54,500 | |
| Cost of goods available for sale | 64,500 | |
| Less: Closing inventory | 8,000 | |
| Cost of sales | 56,500 | |
| Gross profit | 61,500 | |
| Add: Discount received | 1,000 | |
| 62,500 | ||
| Less: Expenses | ||
| Salaries | 12,000 | |
| Rent | 6,000 | |
| General expenses | 3,000 | |
| Total expenses | 21,000 | |
| Net profit | 41,500 |
| Particulars | RM | RM |
|---|---|---|
| Non-current Assets | ||
| Premises | 70,000 | |
| Equipment | 20,000 | |
| Total non-current assets | 90,000 | |
| Current Assets | ||
| Closing inventory | 8,000 | |
| Debtors | 15,000 | |
| Bank | 18,000 | |
| Cash | 4,000 | |
| Total current assets | 45,000 | |
| Total Assets | 135,000 | |
| Owner's Equity | ||
| Capital | 49,500 | |
| Add: Net profit | 41,500 | |
| 91,000 | ||
| Less: Drawings | 8,000 | |
| Owner's equity | 83,000 | |
| Non-current Liabilities | ||
| Bank loan | 30,000 | |
| Current Liabilities | ||
| Creditors | 22,000 | |
| Total Equity and Liabilities | 135,000 |
Answer
Gross profit is RM61,500 and net profit is RM41,500. The Statement of Financial Position balances: total assets RM135,000 equal owner's equity RM83,000 plus liabilities RM52,000 (loan RM30,000 and creditors RM22,000). Closing inventory RM8,000 appears twice: as a deduction in cost of sales and as a current asset.