Ledger and Final Accounts

The LEDGER
After journalizing the transactions, the journal entries will be transferred to the ledger account.
This is known as POSTING. Posting must be in chronological order and must be done on timely
basis. The ledger is a complete collection of all accounts of a company.
There are two types of ledgers: T-accounts, and the 3-column ledger. In Malaysia, most
commonly used ledger is the T-account.

Illustration 1: T-account
Illustration 2: 3-Column Ledger

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The T-Account

a Title of account, CASH, is at the top of the account.

b The left side of the account represent DEBIT entry.

b c
c The right side of the account represent CREDIT entry.

d For every transaction, record the DATE, DETAIL of the account, a

with the AMOUNT.

e Total both side, and the larger sum will be the main total.
d

f The difference will then be added to the smaller sum to bring the f
total to be the same as the main total, i.e. larger sum. At the end
of every month, this will be the closing balance, which indicate the
e
balance of the account. This balance is called balance carry
forward (c/f). If the balance appeared on CREDIT side of the
same month, then the account has a DEBIT balance.
g

g The balance c/f will then be carried forward to the the next
month, which will indicate the balance of the account at the
beginning of the month, known as balance brought forward (b/f).
It will appear on the opposite site of account.

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Example
1/1/2019 Ali started a business by investing RM50,000 cash in the business, ABC Trading.
4/1/2019 Bought goods for cash RM5,000.
26/1 /2019 Sold goods for cash RM6,000.
CASH
2019   RM 2019   RM
Jan 1Capital 50,000 Jan 4Purchases 5,000
26Sales 6,000 31Balance c/f 51,000
56,000  56,000
Feb 1Balance b/f 51,000 

CAPITAL
2019   RM 2019   RM
Jan 31Balance c/f 50,000 Jan 1Cash 50,000
50,000   50,000
Feb 1Balance b/f 50,000

PURCHASES
2019 RM 2019 RM
Jan 4Cash 5,000 Jan 31Balance c/f 5,000
5,000  5,000
Feb 1Balance b/f 5,000 

SALES
2019 RM 2019 RM
Jan 31Balance c/f 6,000 Jan 26Cash 6,000
6,000  6,000
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Trial Balance
After posting the entries into Ledger and closing the account, the company will have information of
the balances of each account recorded in the ledger.
To ensure that the accounts had been correctly recorded using Double Entry Accounting
System, a Trial Balance will be drawn out.

Definition of Trial Balance

A trial balance is a list of all ledger accounts with balances at a particular
date (all ledger accounts with zero balances are excluded).
Purpose of Trial Balance
All the accounts with debit balances will be listed in one column and those
with credit balances will be listed in the second column.  It acts as a test of the
Note that all those ledger accounts with debit balances must be either asset equality of the debit and
accounts or expense accounts. Likewise, all accounts with credit balances credit balances in the ledger.
must be either liability, owner’s equity or revenue accounts.
 It helps to localise errors
The equality of the totals of the debit and credit balances, at a particular date, within a given time period.
are then determined to prove the arithmetical accuracy of the double-entry
system used.  It helps to facilitate the
preparation of the financial
statements.

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Example of a Trial Balance
Preparation of Trial
(based on the Balance
earlier T-Accounts samples)
The trial balance is prepared by taking the following steps:
1. The name of the business is written at the top of the Trial Balance and the title “Trial Balance as at (a
specific date)” is written under the name of the business.
2. The names of the accounts appearing in the ledger are listed in the body of the trial balance along with
their balances.
3. The amounts in each column of the trial balance are then totalled.

Debit Credit
RM RM
Cash 51,000
Capital 50,000
Purchases 5,000
Sales 6,000
56,000   56,000

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 Financial Statements
There are 2 types of financial statements:

A Statement of Income A Statement of Financial Position

or Income Statement or Balance Sheet

 A summary of revenue and expenses A list of assets, liabilities and owner’s equity
for a specific period of time. of a business at a point in time.

 Purpose: To see the revenues and Items in the Statement of Financial Position
expenses of the business so that net (balance sheet) are:
income/profit or net loss could be
determined.  Assets (non-current and current)

 Liabilities (long-term and short-term)

 Capital (owner’s equity)

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Example:
Statement of Income

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Example:
Statement of Financial
Position

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Adjustment of Final Accounts
Accrued Expenses
Acrrued Expenses are expenses that have been incurred
but the amounts have not been paid.
Example:
A total rent of RM 4,000 has been paid for the period from January to
October 2019. Assuming the accounting year ended on 31 December 2019,
and the monthly rent of RM400 is payable at the end of each month, show
the balance day adjustmnts efor rent.

1 January 31 October 31 December

RM4,000 paid RM800 accrued
Rent incurred = RM4,800

Adjustment to Income Statement: Add up expenses

Final Accounts Balance Sheet/SOFP: Current Liabilities

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Prepaid Expenses
Prepaid expenses are expenses that have not been incurred but the amounts
have been paid

Example:
Total insurance of RM 3000 has been paid for the period
1 January 2019 to 31 March 2020. The financial year ends on
31 December 2019. The monthly insurance is RM 200, show
the balance day adjustment for insurance.

1 Jan 2019 31 Dec 2019 31 March 2020

RM2,400 incurred RM600 prepaid
Insurance paid RM3,000

Adjustment to Income Statement: Reduce expenses

Final Accounts Balance Sheet/SOFP: Current Assets

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Accrued Revenues
Accrued revenues are revenues earned in the current accounting period for which
the amounts have not been received
Example:
A trader sub-let a section of his premises to a food stall for a monthly rental of RM
100. Up to 31 December 2019, the end of the accounting year, only a total of RM
900 was received.

With the reference to the example, since rent for three months, i.e. RM 300 has not
been received, the rent earned should be equal to rent received (RM 900) plus
accrued rent (RM 300) i.e. RM 900 + RM 300 = RM 1,200

1 January 30 September 31 December

RM900 received RM300 accrued
Rent Earned RM1,200

Adjustment to Income Statement: Add up revenue

Final Accounts Balance Sheet/SOFP: Current Assets

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Revenues Received in Advance
Revenues received in advance are revenues not earned but the amounts have
been received in the current accounting year
Example:
Abdullah rented out part of his premises to another businessman as office
space starting from 1 January 2019. The annual rent was agreed at RM2,400.
Abdullah already received a cheque for RM2,600. The financial year ended
31 December 2019.

1 January 2019 31 December 2019 31 January 2020

RM2,400 rent earned RM200 in advance
Rent received RM2,600

Adjustment to Income Statement: Reduce revenue

Final Accounts Balance Sheet/SOFP: Current Liabilities

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 Bad Debts
 Bad Debts are debts that are considered irrecoverable after all efforts have been
made to collect them
 Bad Debts are treated as a loss or an expense to a business.
Adjustment to Income Statement: Add up bad debts as expenses
Final Accounts Balance Sheet/Statement of Finance: Less debtor

Bad Debts Recovered

 There is a possibility that the business recovers debts that have been written off as bad debts.
 These previously uncollectable debts, that are unexpectedly recovered, are referred to as bad
debts recovered.
 They are treated as gains of the business.

Adjustment to Income Statement: Revenue, as bad debts recovered

Final Accounts Balance Sheet/Statement of Finance: Add up cash/bank

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Provision for Bad/Doubtful Debts

An estimate of debts that may become bad

Adjustment to Final Accounts
INITIAL (First-made) Income Statement, as Expenses: Provision for doubtful debts
Provision for Doubtful
Debts Balance Sheet/Statement of Finance: Less debtor

INCREASING Income Statement, as Expenses:

the Provision Provision for doubtful debts (with the increased amount)
Balance Sheet/Statement of Finance:
Less debtor (with the increased amount)

REDUCING Income Statement, as Expenses:

the Provision Provision for doubtful debts (with the reduced amount)
Balance Sheet/Statement of Finance:
Less debtor (with the reduced amount)

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Depreciation

Adjustment to Final Accounts

First-Made Income Statement, as Expenses: Depreciation
Depreciation
Balance Sheet/Statement of Finance:
Less accumulated depreciation (from fixed asset at cost)

Existing Income Statement, as Expenses: Depreciation

Depreciation
Balance Sheet/Statement of Finance:
(i) Add up (Accumulate) all existing depreciation
(ii) Less (deduct) fixed asset at cost

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 Example:
The following trial balance was extracted from
Example:
the books of Rima Trading at the year ended 31
The following trial balance was extracted from the books of Rima Trading at the year ended
December
31 2019:
December 2019:

Items Debit(RM) Credit(RM)

Additional information:
Purchases and sales 20,000 50,000
return inwards and outwards 2,500 2700
a) Inventory as at 31 December 2019 RM10,000
Motor vehicle(Cost) 14,000 b) Accrued discount received is RM100.
Equipment (cost) 39,240 c) Rental revenue paid in advance is RM200.
Accumulated depreciation:
Motor vehicle 1,000
d) Accrued insurance expenses is RM300.
Equipment 2,000 e) Prepaid rental expenses is RM250.
Opening inventory 2,580 f) Provision for doubtful debt is to be adjusted to
Discounts allowed and received 700 400
Account receivables and account payables 4,920 2,490
RM 300.
Insurance 2,970 g) Depreciate motor vehicle at 10% using
Provision for doubtful debts 270 reducing balance method.
Rental 2,400 5,000
Carriage inwards 200
h) Depreciate equipment at 20% using straight
Capital 25,650 line method.
Drawings 8,000
Bank loan 8,000 Required:
97,510 97,510
Draw up the Income Statement for the year ended
31/12/2019 together with a Statement of Financial
Position (Balance Sheet) as on 31/12/2019.

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