Introduction to Unadjusted Trial Balance
An unadjusted trial balance is a list of all the general ledger balances without making any adjustment entries. It is used as a beginner for making adjustment entries and analyzing the financial statements. It helps to confirm that all debits are equal to credits and also to identify errors, if any. All the adjustments related to accruals are made to get an adjusted trial balance.
Format of Trial Balance
There are three columns in unadjusted trial balance- the first one is account names, the second is debit, and the third one is credit. The accounts are listed generally in the balance sheet order, and the profit and loss account, i.e. assets and liabilities, come before income and expenses. Assets and expenses are posted on the debit side and likewise liabilities and incomes on the credit side.
Steps to Prepare an Unadjusted Trial Balance
- Balances from all the leger accounts are taken, and the trial balance format is to be prepared.
- Enlist the accounts and write the balances in respective debit and credit columns.
- Calculate the total balance of debit and credit side
- If the total of both sides is the same, the trial balance is mathematically correct. In case the same is not tallied, look for errors and reasons and correct the same.
Example of Unadjusted Trial Balance
Example of Unadjusted Trial Balance are as follows:
Example #1
A company trading in metals wants to prepare trial balance from the below ledger balances- Cash $32,800, account receivable $100,000, inventory $39,800, accounts payable $49,000, long term liability $99,500, equity shares $10,000, dividend paid $1,000, revenue $27,500, cost of goods sold $10,200, rent expenses $1,000, Wages $700 and interest expenses $500. Also, one month’s wages amounting to $100 are not provided for in the ledger account. Prepare a trial balance before and after adjustment.
Solution:
The unadjusted trial balance is as under-
Now the adjustment entry for an accruing one-month wage would be passed. This will increase the wage expense and create a new liability of wages payable. The adjusted trial balance will be as under-.
Uses of Trial Balance
Trail balance has numerous uses depending on the requirements of the end-user. A few of them are illustrated below:
- Provides a base for making adjustments
- Helps in an audit by providing an audit trail
- It defines the credibility of transactions
- It is also an aid to management for having control over business transactions.
Advantages
Advantages of preparing an unadjusted trial balance are stated below-
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- It ensures that debits are equal to credits
- It helps in identifying errors of journalizing or posting
- It helps in finding errors in the general ledger
- It provides a base for the preparation of financial statements
- It provides a summary of balances in one place
- It also helps in checking the mathematical accuracy of accounts
Disadvantages
There are a few limitations of unadjusted trial balance as well, which are enunciated below-
- It doesn’t authenticate that all the transactions are recorded in books
- There are still chances of errors even if the trial balance columns tally
- It cannot find any missing entry from journal or ledger
- It cannot ascertain error in passing the original entry
- There are chances of offsetting errors
- An error of commission or omission cannot be ascertained
- It doesn’t validate the error of principle
- It cannot find the error of reversal entry
Conclusion
- An unadjusted trial balance is crucial for making financial statements and helps in identifying errors so that corrective measures can be taken.
- It is a worksheet of ledger balances with credit and debit columns to check mathematical accuracy.
- It ensures that there are no mathematical error, but there can be an accounting error.
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