TOPIC 4

SOURCE DOCUMENTS,
BOOKS OF PRIME ENTRY and
TRIAL BALANCE

1
 Learning Outcomes

 State the process of recording a business transaction.

 State the different books of prime entry.
 State the functions of the General Journal (GJ) and
Special Journal (SJ).
 Identify the source documents for the different types of
journals.
 Post the transactions in the GJ and SJ to the appropriate
accounts in Ledger.
 State the purpose of preparing a trial balance.
 Construct a trial balance from the accounts in the ledger.
2
 Accounting Cycle

Source
Documents

Books of
Financial Prime
Statements Entry
(Journals)

Ledgers
Adjustments
(T-account)

Trial
Balance
3
 Source Documents

 A source document is a specially designed form

which supplies details of a business transaction.
 It contains information like the date, the nature and
types of transactions, the value of the transactions
and the names of the buyers and sellers involved.
 Source documents are important:
 as evidence of transactions
 for recording transactions
 for auditing purposes

4
 Types and Usage of Source
Documents
Source Usage
Documents
Invoices Used in credit transactions only.
Cash bills Used in cash transactions only.
Used to inform the buyer that his or her account in the books of the seller
Credit notes
have been credited (debt has been reduced).
Used to inform the buyer that his or her account in the books of the buyer
Debit notes
have been debited with stated amount.
A receipts is issued by a receiver of payment to the payer for payment made
Receipts
by cash or cheque.
Used when a payment has been made but a receipt is not given by the
Vouchers
receiver of payment.
Used as a notice when there is an increase in capital, drawings or other
Memos
extraordinary event.
Cheque butts Evidence that payment has been made by cheque. 5
 Example of
Source Documents

6
 Books of Prime Entry

 Books of prime entry are the first books in which the business
transactions are recorded throughout the accounting process.
 They are also known as books of original entry.
 Each transaction recorded must be supported by documentary evidence
such as invoices, receipts, cash register slips, cheques, and etc.
 The following are the main books of prime entry:
 Sales journal or sales day book
 Purchases journal or purchases day book
 Sales returns journal or return inwards day book
 Purchases returns journal or return outwards day book
 Cash book or cash receipts and payments journal
 Petty cash book
 The journal or general journal
7
 Books of Prime Entry

JOURNAL

Special Journal General Journal

used to record transactions used to record transactions

of a similar nature such as other than those in the
credit sales or credit special journals such as
purchases of goods purchase of fixed asset

NOTE: Special Journal are created to reduce the number

(frequency) of entries in the General Journal. 8
 SOURCE DOCUMENTS
Purchases Purchases Cheque book
Sales invoices Sales credit Invoices for
invoices credit notes stub / Paying-in
(copy) notes (copy) book stub
fixed assets
(received) (received)

Goods Goods
Credit Cash receipt /
Credit sales returned by returned to Others
purchases cash paid
customers suppliers

Which book of prime entry to record?

Cash book /
Purchases Sales return Purchases General
Sales journal Petty cash
journal journal return journal journal
book

Dr. Debtor Dr. Purchases Dr. S/return Dr. Creditor

Cr. Sales Cr. Creditor Cr. Debtor Cr. P/return

Special journal General journal

9
 Sales Journal / Sales Day Book

 This is used for recording sales on credit of those

goods bought specifically for resale.
 It excludes cash sales and sales of fixed assets.
 It is a one-line entry without any debit or credit.
 It supplies information on credit sales in
chronological order of date.
 It facilitates cross-reference, e.g. tracing back the
transaction and source document.
 It reduces detailed recordings in the Ledger.

10
 Sales Journal / Sales Day Book

Sales Invoice

An invoice is a business document sent by

seller to buyer to inform the latter of the
amount due on goods or services supplied.

11
 Sales Journal / Sales Day Book

The following figure shows the process of recording the information of invoices
sent to the buyers into the Sales Journal and posting it to the Ledger.

12
 During the month of January, Freewill Ltd, the proprietor, made some credit sales.
Example The following were the copies of the original invoices sent to the buyers.
Invoice No. 8001 Invoice No. 8002 Invoice No. 8003
Freewill Ltd Freewill Ltd Freewill Ltd
3.1.2021 6.1.2021 9.1.2021
To: Chang To: Lee Brothers To: Omar & Sons

Rice RM280 Sugar RM360 Biscuits RM1,000

Less: 10% trade discount RM100 Source
RM900 Documents
Invoice No. 8004
Freewill Ltd
12.1.2021
To: Chang Freewill Ltd is a seller
and sold goods on credit
Rice RM300

Sales Journal
Date Invoice No. List of Debtors Invoice Detail Amount
2021 RM
Jan 3 8001 Chang 280
Dr. Debtor 6 8002 Lee Brothers 360
Cr. Sales 9 8003 Omar & Sons 1,000
Journal
Less: 10% trade discount 100 900
12 8004 Chang 300
31 Sales (Cr.) 1,840

Debit Debit
Chang a/c Lee Brothers a/c
2021 RM   2021 RM  
Jan 3 Sales 280   Jan 6 Sales 360  
12 Sales 300  

Ledgers
Debit Credit
Omar & Sons a/c Sales a/c
2021 RM   2021 RM
After deducting
Jan 9 Sales 900  
trade discount Jan 31 Sundry 1,840
debtors 13
 Purchases Journal /
Purchases Day Book

 This is used for recording purchases on credit of

those goods intended for resale.
 It excludes cash purchases and purchase of fixed
assets.
 It is a one-line entry without any debit or credit.
 It supplies information on transactions in
chronological order of date.
 It facilitates cross-reference, e.g. tracing back the
transaction and source document.
 It reduces detailed recordings in the Ledger.
14
 Purchases Journal /
Purchases Day Book

Purchases Invoice

An invoice is a business document receive by

buyer from the seller to inform the latter of
the amount due on goods or services
supplied.

15
 Purchases Journal /
Purchases Day Book
The following figure shows the process of recording the information of invoices
received from suppliers into the Purchases Journal and posting it to the Ledger.

16
 During the month of January, Freewill Ltd, the proprietor, made some credit
Example purchases. The following were the original invoices sent by the sellers.
Invoice No. 1122 Invoice No. 5353 Invoice No. 6688
Yu Yi Qin Shan Sin Sin
3.1.2021 11.1.2021 28.1.2021
To: Freewill Ltd To: Freewill Ltd To: Freewill Ltd

Bottled drinks RM800 Bottled drinks RM400 Bottled drinks RM1,000

Less: 10% trade discount RM100 Source
RM900 Documents
Invoice No. 1220
Yu Yi
20.1.2021
To: Freewill Ltd Freewill Ltd is a buyer and
purchased goods on credit
Bottled drinks RM600

Purchases Journal
Date Invoice No. List of Creditors Invoice Detail Amount
2021 RM
Jan 3 1122 Yu Yi 800
Dr. Purchases 11 5353 Qin Shan 400
Cr. Creditor 20 1220 Yu Yi 600
Journal
28 6688 Sin Sin 1,000
Less: 10% trade discount 100 900
31 Purchases (Dr.) 2,700

Yu Yi a/c Credit Credit

Sin Sin a/c
2021 RM 2021  RM
Jan 3  Purchases 800 Jan 28  Purchases 900
20  Purchases 600
After deducting Ledgers
Credit Debit trade discount
Qin Shan a/c Purchases a/c
 2021 RM 2021 RM
 Jan 11 Purchases 400
Jan 31 Sundry 2,700
creditors 17
 Credit Note and Debit Note

 When Credit Note is sent?

 It is used for goods returned (e.g. damaged, wrong brand) or
for amount overcharged (e.g. due to wrong unit price, error in
quantity billed).
 Credit note is prepared by the seller (i.e. your creditor) to be
sent to the buyer (you, the company) informing them that
their account (the buyer’s account) in the books of the seller
have been credited (debt has been reduced).

 When Debit Note is sent?

 Sometimes the buyer can also sent debit note to the seller.
 Debit note is prepared by the buyer (you, the company) to be
sent to the seller (i.e. your creditor) informing them that their
account (the seller’s account) in the books of the buyer have
been debited (debt has been reduced). 18
 The reasons of goods bought on credit
are returned:

They are defective

or damaged
They are not in accordance
to specification, quality,
size, type or brand name

They are empty bottles,

cases or containers which
are returnable

19
 Sales Returns Journal /
Return Inwards Day Book

 This is used to record returns of goods by the

customers.
 It is also used when the customers are overcharged.
 It is a one-line entry without any debit or credit.
 It gives the date order for each transaction.
 It reduces the volume of entries in the Ledger.
 It enables easy reference to the source of
transactions.

20
 Sales Returns Journal /
Return Inwards Day Book
The following figure shows the process of recording the information of credit notes
sent to the customers into the Sales Returns Journal and posting it to the Ledger.

When customer returns

goods back to seller Seller (you) will
(you), seller will record send out a credit
as sales returns notes to buyer
21
 Upon receiving goods returned by the customers, credit notes were prepared and sent to the respective
Example customers. For the month of January, the following copies of credit notes were retained by Freewill Ltd for
the purpose of making entries in the Sales Returns Journal and the debtors’ accounts in the Ledger.

Credit Note No. 1003 Credit Note No. 1004

Freewill Ltd Freewill Ltd
Freewill Ltd is a seller 12.1.2021 15.1.2021
and sold goods on credit To: Omar & Sons To: Chang
but then the goods Source
Biscuits RM100 Rice RM30 Documents
were returned by the Less: 10% trade discount RM10
customer for a reason RM90

Sales Returns Journal

Date Credit Note No. List of Debtors Credit Note Detail Amount
Dr. Sales returns 2021 RM
Cr. Debtor Jan 12 1003 Omar & Sons 100 Journal
Less: 10% trade discount 10 90
15 1004 Chang 30
31 Sales returns (Dr.) 120

Chang a/c Credit

2021 RM 2021  RM
Jan 3 Sales 280  Jan 15 Sales returns 30
12 Sales 300  

Credit After deducting

Omar & Sons a/c trade discount Ledgers
2021 RM 2021  RM
Jan 9 Sales 900  Jan 12 Sales returns 90

Debit Sales Returns a/c

2021 RM
Jan 31 Sundry debtors 120
22
 Purchases Returns Journal /
Return Outwards Day Book

 This is used to record returns of goods bought for

resale.
 It also records overcharges (as a result of wrong
unit price or wrong quantity billed by the suppliers).
 It is a one-line entry without any debit or credit.
 It gives the date order for each transaction.
 It cuts down detailed recordings in the Ledger.
 It enables quick reference to the source of
transactions.

23
 Purchases Returns Journal /
Return Outwards Day Book
The following figure shows the process of recording the information of credit notes
received from suppliers into the Purchases Returns Journal and posting it to the
Ledger.

When buyer returns Buyer will

goods to seller, receive a
buyer will record as Credit Note
purchases returns from seller
24
 Freewill Ltd returned some of the goods bought to his suppliers during the month of January. Upon returning
Example the goods, he received the following original credit notes. These documents were then used as a source of
information for the purpose of recording in the Purchases Returns Journal.
Credit Note No. 0123 Credit Note No. 1075 Credit Note No. 1005
Yu Yi Qin Shan Sin Sin
6.1.2021 14.1.2021 31.1.2021
To: Freewill Ltd To: Freewill Ltd To: Freewill Ltd
Source
Bottled drinks RM100 Bottled drinks RM40 Bottled drinks RM100 Documents
Less: 10% trade discount RM10
RM90

Freewill Ltd is a buyer

and purchased goods on
credit but then returned Purchases Returns Journal
the purchased goods to Date Credit Note No. List of Creditors Credit Note Detail Amount
the supplier for a reason
2021 RM
Jan 6 0123 Yu Yi 100
14 1075 Qin Shan 40
Journal
Dr. Creditor 31 1005 Sin Sin 100
Cr. Purchases returns Less: 10% trade discount 10 90
31 Purchases returns (Cr.) 230
Debit
Yu Yi a/c
2021 RM 2021 RM
Jan 6 Purchases returns 100 Jan 3  Purchases 800
20  Purchases 600

Debit
Qin Shan a/c
2021 RM 2021 RM
Jan 14 Purchases returns 40 Jan 11  Purchases 400

Debit Ledgers
Sin Sin a/c
2021 RM 2021 RM
Jan 31 Purchases returns 90 Jan 28 Purchases 900
After deducting
trade discount
Credit
Purchases Returns a/c
2021 RM
Jan 31 Sundry creditors 230 25
 Purpose of the Cash Book

1. Reduces the number of entries in the ledger

 There are usually a large number of transactions involving the receipt
and payment of cheques.
 If recorded in a bank account (in ledger), it would be cumbersome.
 Cash book is used to record receipts and payments by cheque.

2. Division of labour is made possible

 One can write up the cash book while another can work on the ledger.
 Reduces the possibility of errors:
 Check on the work of the person who writes up the cash book
where it is posted to ledger by someone else.

3. Provides easy cross-reference

 It is part of the double-entry system.
26
 Types of Cash Book

TYPES OF CASH BOOK

two-column three-column
cash book cash book

27
 Two-column Cash Book

 The first type of a two-column cash book in which are

recorded cash received and cash paid in one money column
on each side, and cheques received and cheques paid in the
other column on each side.

Dr. Two-column Cash Book Cr.

Date Particulars Folio Cash Bank Date Particulars Folio Cash Bank
1 2 3 4 5 1 2 3 4 5

 In practice, cash received and cash paid is usually recorded

in a separate petty cash book. The cash book thus normally
consists of a two-column with bank and discount columns.
28
 Two-column Cash Book

 The second type of two-column cash book in which are

recorded cheques received and cheques paid in one money
column on each side, and cash discount allowed and cash
discount received in the other column on each side.

Dr. Two-column Cash Book Cr.

Date Particulars Folio Discount Bank Date Particulars Folio Discount Bank
1 2 3 4 5 1 2 3 4 5

 The cash book is used instead of the bank account in the

ledger, and is written up from the bank paying-in book and
cheque book stubs.
29
 Three-column Cash Book

The three-column cash book in which are recorded:

 Cash received and cash paid in one column on each side.
 Cheques received and cheques paid in one column on each
side.
 Discount allowed and discount received in the remaining
column on each side.
Dr. Three-column Cash Book Cr.
Date Particulars Folio Discount Cash Bank Date Particulars Folio Discount Cash Bank

1 2 3 4 5 6 1 2 3 4 5 6

Memo Memo

allowed received
30
 Cash Book:
Contra Account

 The Cash Book has two accounts, cash and bank. Hence, it is
possible to have a debit entry as well as a credit entry at the
same time within the Cash Book, with no other ledger
entries required. Such entries are called contra entries.
 Contra entries are involved:
 When cash is transferred from the office (cash column in cash book)
to the bank
Debit Bank; Credit Cash

 When cash is withdrawn from the bank for office use (cash column
in cash book) Debit Cash; Credit Bank

31
 Cash Book:
Dishonored Cheque

 Dishonored cheques are cheques where payments are

refused (returned cheques).
 A cheque can become dishonored because of one of the
following reasons:
 The drawer has insufficient money in his current account
(e.g. “refer to drawer”).
 The amounts written in words and in figures do not tally
(technical reason).
 The signature of the drawer differed from the specimen
signature given to the bank (technical reason).
 The cheque may be a post-dated cheque.

32
 General Journal

The General Journal is usually used to record the following

transactions:
 Purchase and sale of fixed assets on account.
 Other transactions such as drawings, additional capital by
the owner and services charged.
 Opening entry.
 Closing entry.
 Adjustments on balance day.
 Correction of errors.
 Any other transactions that cannot be recorded in the
special journal.
33
 General Journal
Characteristics of General Journal:
 You have columns for date, particulars debit and credit for a
transaction.
 A row for brief explanation of the transaction called
narrative.
 It also acts as a book of “giving directives”. Accounts in
ledger are debited or credited according to the entries in
general journal.
 Format:
General Journal
Date Details Folio Dr. Cr.
The name of the account to be debited.
The name of the account to be credited.
(the narrative)

34
 Example 1: Purchase of fixed asset on credit
2021
The business bought a delivery van for RM30,000 on credit from Safety Enterprise
Jan 11
S o u rc e D o c u m e nt : I nvo i c e
Analysis:
T h e d e l i v e r y va n , a n a s s e t , i n c re a s e s a n d i s t h e re fo re d e b i t e d . S afe t y E nt e r p r i s e
( t h e c re d i t o r ) , a l i a b i l i t y, i n c re a s e s a n d i s t h e refo re c re d i te d .

Journal Entry
Date Particulars Dr. Cr.
2021 Motor vehicles 30,000
Jan 11 Safety Enterprise 30,000
(Being purchase of a delivery van)

Posting from General Journal to the Ledger:

Motor Vehicles a/c
2021 RM RM
Jan 11 Safety Enterprise 30,000

Safety Enterprise a/c

RM 2021 RM
Jan 11 Motor vehicles 30,000
35
 Example 2: Owner withdrew goods for personal use (Drawings)
2021
Jan 15
The owner withdrew goods worth RM100 for personal use
S o u rc e D o c u m e nt : I nt e r- o ffi c e m e m o
Analysis:
Fo r d raw i n g s , o w n e r ’s e q u i t y, d e c re a s e d a n d i s t h e re fo re d e b i te d . P u rc h a s e s , a n
ex p e n s e , d e c re a s e d a n d i s t h e re fo re c re d i t e d .

Journal Entry
Date Particulars Dr. Cr.
2021 Drawings 100
Jan 15 Purchases 100
(Being withdrawal of goods for personal use)

Posting from General Journal to the Ledger:

Drawings a/c
2021 RM RM
Jan 15 Purchases 100

Purchases a/c
RM 2021 RM
Jan 15 Drawings 100
36
 Example 3: Additional capital other than cash
2021
Jan 18
The owner brought in furniture worth RM1,500 for office use
S o u rc e D o c u m e nt : I nt e r- o ffi c e m e m o
Analysis:
F u r n i t u re , a n a s s e t , i n c re a s e s a n d i s t h e refo re d e b i te d . C a p i ta l , o w n e r ’s e q u i t y,
i n cre a s e s a n d i s t h e refo re c re d i te d .

Journal Entry
Date Particulars Dr. Cr.
2021 Furniture 1,500
Jan 18 Capital 1,500
(Being additional capital in the form of furniture)

Posting from General Journal to the Ledger:

Furniture a/c
2021 RM RM
Jan 18 Capital 1,500

Capital a/c
RM 2021 RM
Jan 18 Furniture 1,500
37
 Trial Balance

Step 4:
Step 3: Trial
Ledgers balance
Step 2:
Books of
prime
Step 1: entry
Source
documents

A Trial Balance is actually a list of debit balances and credit

balances extracted from the accounts in the Ledger.

It is not an account and does not form part of the double-

entry system.
38
 Purpose of a Trial Balance

 To check the arithmetic accuracy of the entries made in the

accounts whether they adhere to the double-entry system.

 To check the accuracy of calculation of each entry made.

 To verify the accuracy of postings from the journal entries to

ledgers.

 To facilitates the preparation of the final accounts (e.g.

Statement of Comprehensive Income and Statement of
Financial Position) for the business.
39
 Steps in preparation of a Trial
Balance

Step 3

Step 4
Step 1

Step 2
List all debit Add up the
Add up the Determine the
balances on one
total on the amount and debits and
side (column)
type of balance credits – the
two sides of in the ledger
and all credit
sum of the two
the ledger balances on
account (can be sides should
another side
accounts. debit or credit).
(column) be equal.

40
 Steps in preparation of a Trial
Balance

When drawing up a Trial Balance, special

attention should be given to the following:
 The individual / business name is written at
the top.
 The date has to be stated after the heading
“Trial Balance as at …”.
 Accounts without any balance need not be
shown in the Trial Balance.
41
 RM
Example 3 Purchased goods by cheque 5,000
5 Cash sales 1,500
Eric commenced business as a
7 Purchased goods in credit from Chan Brothers 3,500
dealer selling stationery on 1
February 2021 with cash in 10 Sold goods on credit to Okay 1,450
hand RM1,000 and cash at bank 12 Returned goods to Chan Brothers as goods supplied were of 150
RM15,000. The following different specifications
transactions took place during
13 Okay returned defective goods 100
the month of February 2021:
15 Paid wages in cash 750
16 Paid Chan Brothers by cheque 1,000
17 Received cheque from Okay 800
18 Cash sales 2,000
20 Withdrew cash from bank for personal use 1,200
24 Bought furniture by cheque 1,350
26 Withdrew goods for personal use 50
27 Paid wages in cash 750
28 Transferred cash into bank account 2,200
29 Paid Chan Brothers cheque RM1,000 and received discount of
RM50

R ED :
REQUI
(a) Record the above transactions in the appropriate ledger accounts.
42
(b) Prepare the trial balance for Eric as at 29 February 2021.
 Solution:
Double-entries
Feb 1Dr. Cash 1,000   Feb 17Dr. Bank 800  
 Dr. Bank 15,000      Cr. Okay   800
   Cr. Capital   16,000
Feb 18Dr. Cash 2,000  
Feb 3Dr. Purchases 5,000      Cr. Sales   2,000
   Cr. Bank   5,000
Feb 20Dr. Drawings 1,200  
Feb 5Dr. Cash 1,500      Cr. Bank   1,200
   Cr. Sales   1,500
Feb 24Dr. Furniture 1,350  
Feb 7Dr. Purchases 3,500      Cr. Bank   1,350
   Cr. Chan Brothers   3,500
Feb 26Dr. Drawings 50  
Feb 10Dr. Okay 1,450      Cr. Purchases   50
   Cr. Sales   1,450
Feb 27Dr. Wages 750  
Feb 12Dr. Chan Brothers 150      Cr. Cash   750
   Cr. Purchases returns   150
Feb 28Dr. Bank 2,200  
Feb 13Dr. Sales returns 100      Cr. Cash   2,200
   Cr. Okay   100
Feb 29Dr. Chan Brothers 1,050  
Feb 15Dr. Wages 750     Cr. Bank 1,000
   Cr. Cash   750    Cr. Discount received   50

Feb 16Dr. Chan Brothers 1,000  

   Cr. Bank   1,000

43
 Solution:
Ledgers

Cash Account
2021 RM 2021 RM
Feb 1Capital 1,000 Feb 15Wages 750
5Sales 1,500 27Wages 750
18Sales 2,000 28Bank 2,200
29Balance c/d 800
4,500   4,500
Mar 1Balance b/d 800  

Bank Account
2021 RM 2021 RM
Feb 1Capital 15,000 Feb 3Purchases 5,000
17Okay 800 16Chan Brothers 1,000
28Cash 2,200 20Drawings 1,200
24Furniture 1,350
29Chan Brothers 1,000
 Balance c/d 8,450
18,000   18,000
Mar 1Balance b/d 8,450  

44
 Solution:
Ledgers
Capital Account
2021 RM 2021 RM
Feb 29Balance c/d 16,000 Feb 1Cash 1,000
 Bank 15,000
16,000   16,000
Mar 1Balance b/d 16,000

Purchases Account
2021 RM 2021 RM
Feb 3Bank 5,000 Feb 26Drawings 50
7Chan Brothers 3,500 29Balance 8,450
8,500   8,500

Sales Account
2021 RM 2021 RM
Feb 29Balance 4,950 Feb 5Cash 1,500
10Okay 1,450
18Cash 2,000
4,950   4,950

45
 Solution:
Ledgers

Chan Brothers Account

2021 RM 2021 RM
Feb 12Purchases returns 150 Feb 7Purchases 3,500
16Bank 1,000  
29Bank 1,000  
Discount received 50  
Balance c/d 1,300  
3,500   3,500
Mar 1Balance b/d 1,300

Okay Account
2021 RM 2021 RM
Feb 10Sales 1,450 Feb 13Sales returns 100
17Bank 800
29Balance c/d 550
1,450   1,450
Mar 1Balance b/d 550  

46
 Solution:
Ledgers

Purchases Returns Account

2021 RM 2021 RM
Feb 29Balance 150 Feb 12Chan Brothers 150

Sales Returns Account

2021 RM 2021 RM
Feb 13Okay 100 Feb 29Balance 100

Wages Account
2021 RM 2021 RM
Feb 15Cash 750 Feb 29Balance 1,500
17Cash 750  
1,500   1,500

47
 Solution:
Ledgers

Drawings Account
2021 RM 2021 RM
Feb 20Bank 1,200 Feb 29Balance c/d 1,250
26Purchases 50  
1,250   1,250
Mar 1Balance b/d 1,250  

Furniture Account
2021 RM 2021 RM
Feb 24Bank 1,350 Feb 29Balance c/d 1,350
Mar 1Balance b/d 1,350  

Discount Received Account

2021 RM 2021 RM
Feb 29Balance 50 Feb 29Chan Brothers 50

48
 Solution:
Trial Balance

Eric
Trial Balance as at 29 February 2021
Debit (RM) Credit (RM)
Cash Debit
800 Credit
 
Bank Balances 8,450 Balances  
Capital 16,000
Purchases 8,450  
Sales 4,950
Chan Brothers (creditor) 1,300
Okay (debtor) 550  
Purchases returns 150
Sales returns 100  
Wages 1,500  
Drawings 1,250  
Furniture 1,350  
Discount received 50
22,450 22,450

Sum of both sides should be equal 49

 Why CLOSING INVENTORY not
included in Trial Balance

 Closing inventory is the leftover balance out of goods which were

purchased during an accounting period but are unsold till now.
Total purchases are already included in the trial balance. Hence,
closing inventory should not be included in the trial balance
again. If it is included, the effect will be doubled.
 Suppose total purchases during an accounting period inside a
Trial Balance are RM10,000. 
 Closing inventory is RM2,000 (this is included in purchases
already).
 If both of these figures are shown in trial balance then there will
be a mismatch of RM2,000 because the effect has now been
doubled in the trial balance. Also, no separate account is opened
for closing inventory inside the general ledger. Hence, closing
inventory is not to be shown in the trial balance.
50
… End of Topic 4 …

Topic 5

51