Unadjusted trial balance is a detailed list of all the credit and debit balances extracted during given dates before making adjustments.  Trial balances are used to check on the completion of the double entry principle in business besides checking on arithmetic accuracy of many transactions.

What is an unadjusted trial balance ?

An unadjusted trial balance is a chart comprising of a list of business accounts which are to appear on financial statements before the  completion of a given business trading year.  They’re prepared after the completion of the general ledger and before the adjustment of entries. The preparation of unadjusted trial balance marks the third phase of the accounting cycle.

The trial balance chart aids in analysation of a person or company accounts. It also aids in the detection of errors. The preparation of the unadjusted trial balance depends on information from the general ledger and other accounting records like balance sheets and income statement

The process of preparing adjustments entails the analysation of unadjusted balances in the balance sheet and income statement accounts. The second strep will entail the preparations of adjusting journal entries in order to make some adjustments. The last step will entail the summarization of the adjusting journal entry.

Adjustments of entry types in unadjusted trial balance

The three major types of adjustment journal entries focus on the adjustment of income and expenses. Prepaid expenses e.g. insurance records goods that have been paid for but not yet consumed.

In the preparation of the unadjusted trial balance, unearned revenues are recorded. They represent the income received from customers.

UNADJUSTED TRIAL BALANCE FORMAT

The format consists of three columns which can either be created on a sheet of paper or spreadsheet program. You will be required to list the period of the business ending date above the table. The first column is the account name column which comprises of each account name on the general ledger, followed by the debit which indicates the debit balances. The last column is the creditcolumn which indicates credit balances. The listing of the account name follows the order in which the accounts appear in the general ledger

With proper recording of entries, the total of debit columns of the unadjusted trial balance should be equivalent to the credit columns. A mismatch between the credit and debit column communicates a lot. First it shows that entries have not been correctly registered or journal entries were in appropriately transferred.

The format of an unadjustment trial balance ensures that the listing of accounts occurs in accordance to the listing of their account number. The format follows the balance sheet creation order with a correct listing of capital, assets and liabilities. A simple format is illustrated below.

Unadjusted Trial Balance Sample:

XYZ Ltd

UNADJUSTED TRIAL BALANCE

10/5/2016

Account name Debit Credit
Cash 20430
Accounts receivable 5900
Office supplies 22800
Prepaid rent 36000
Equipment 80000
Accounts payable 30000
Notes payable 20000
Utilities payable 25000
Unearned revenue 35000
Common stock 90000
Service revenue 15764
Wages expenses 38200
Miscellaneous Expense 3470
Electricity expense 2470
Telephone expense 1494
Dividends 5000
Totals 215,764 215,764

From the table, there is the listing of accounts numbers with corresponding debit and credit balance. The double entry principle is confirmed as total debits are equivalent to total credits.

                                                                                                                              

Balance sheet and income account listing on the unadjusted trial balance

The first accounts to include in the unadjusted balance table are the assets. The most obvious assets to include are cash and inventories. The accounts have debit balances. Liabilities like stockholders equity accounts e.g. common stocks and accounts payable should be recorded below the assets column. Both liabities and equity have credit balances.

In the income statement, you will be required to list all your revenue accounts which have a credit balance. Examples of such accounts include sales and service revenue. The last account to include is the expense account. Examples of expenses are utilities and advertising expenses.

The completion of an unadjusted trial balance will be marked by the summation of the total debit and credit balances on their respective columns. With a proper record of transactions during a given business period, the total debits should be equal to the total credits.

Financial statements shouldn’t be prepared from the unadjusted trial balance. Be 100% assured of inaccurate financial statement if you decide to use the unadjusted trial balance in the preparation of your financial statement.

Unadjusted trial balance provides a review and necessary adjustments to make on your accounts. Adjustments such as accrued interest rates and depreciation costs on assets will be determined by the unadjusted trial balance. With the integration of adjustments on your unadjusted trial balance, you can prepare your financial statements.

 

Purpose of an unadjusted trial balance

Adjustments are needed to ensure that there is a record of revenue when earned and a record of expenses when incurred. Mostly, reports represent economic benefits while liabilities reports represent the amount owned by at the end of a given trading period.

The sole reason for the preparation of the unadjusted trial balances is to confirm the equality of the debit and credit accounts entries. With a proper recording of all transaction in the general journal and in accordance to the double entry business principle, total debit entries should be equivalent to total credit entries.

An unbalanced trial balance indicates several types of errors that may not exist in a balanced trial balance. Errors of commission of entries, omission of entries, and complete reversal of entries are a few errors that are indicated by unbalanced trial balance creation.

There are certain types of errors that cannot be determined by an unadjusted trial balance. The errors include; the incorrect record and analysation of transactions, the omission of accounts from the journal or ledger accounts and the understating or overstating the debit and credit accounts.

Besides the omissions of certain types of errors by the unadjusted trial balance, the other limitation of the unadjusted trial balance sometimes overstates and understates expenses

Finding net income from an adjusted trial balance

First, you will be required to add all the revenue account balances. The revenue account may include product revenue, sales revenue and service revenue. You will be required to add all the revenue account balances listed in the debit columns. The difference between the total revenues and expenses will be your net income.

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