Unadjusted Trial Balance
An unadjusted trial balance is a trial balance which is created before any adjusting entries are made in the ledger accounts.
A trial balance is a list of the balances of ledger accounts of a business at a specific point of time usually at the end of a period such as month, quarter or year.
The preparation of a trial balance is very simple. All we have to do is to list the balances of all the ledger accounts of a business.
Example
The following unadjusted trial balance has been prepared from the ledger accounts of Company A.
| Company A | ||
| Unadjusted Trial Balance | ||
| January 31, 20X0 | ||
| Debit | Credit | |
| Cash | $20,430 | |
| Accounts Receivable | 5,900 | |
| Office Supplies | 22,800 | |
| Prepaid Rent | 36,000 | |
| Equipment | 80,000 | |
| Accounts Payable | $5,200 | |
| Notes Payable | 20,000 | |
| Utilities Payable | 3,964 | |
| Unearned Revenue | 4,000 | |
| Common Stock | 100,000 | |
| Service Revenue | 82,600 | |
| Wages Expense | 38,200 | |
| Miscellaneous Expense | 3,470 | |
| Electricity Expense | 2,470 | |
| Telephone Expense | 1,494 | |
| Dividend | 5,000 | |
| Total | $215,764 | $215,764 |
Since, in double entry accounting we record each transaction with equal debit and credit effect, therefore the total of debit and credit balances of the trial balance are always equal. Any difference shall indicate some mistake in the recording process or in the calculations. Although each unbalanced trial balance indicates mistake, this does not mean that a trial balance which is balanced is always correct. It is quite possible for incorrect journal entries to not unbalance the trial balance and they may escape un-noticed if individual journals and ledgers are not reviewed carefully. Examples of such errors are: to omit an entry, to record a transaction twice, to record an expense in the wrong expense account, etc.
After the preparation of an unadjusted trial balance, the next step in the accounting cycle is to pass adjusting entries.
by Irfanullah Jan, ACCA and last modified on