Unadjusted Trial Balance Definition Example Uses

Unadjusted Trial Balance Definition

These year-end adjusting entries are considered necessary to make an Adjusted Trial BalanceAdjusted Trial BalanceAdjusted Trial Balance is a statement which incorporates all the relevant adjustments. Although it is not a part of financial statements, the adjusted balances are carried forward in the different reports that form part of financial statements. read more and include passing adjusting journal entriesAdjusting Journal EntriesAdjusting Entries in Journal is a journal entry made by a company at the end of any accounting period on the basis of the accrual concept of accounting. Companies are required to adjust the balances of their various ledger accounts at the end of the accounting period in order to meet the requirements of the various authorities’ standards.read more which include entries namely:

ReceivablesReceivablesAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year.
read more that do not apply to the period for which Accounting records are to be prepared.Accrued ExpensesAccrued ExpensesAn accrued expense is the expenses which is incurred by the company over one accounting period but not paid in the same accounting period. In the books of accounts it is recorded in a way that the expense account is debited and the accrued expense account is credited.read more /Interest relatedPrepaid Income/Expenses itemsMoney received for work that is to be done in another accounting periodAccounting PeriodAccounting Period refers to the period in which all financial transactions are recorded and financial statements are prepared. This might be quarterly, semi-annually, or annually, depending on the period for which you want to create the financial statements to be presented to investors so that they can track and compare the company’s overall performance.read more. For example, Advance paymentsAdvance PaymentsAdvance payment is made by a buyer to the seller before the actual scheduled time of receiving the goods and services. It protects the seller from the risk of non-payment. Additionally, it helps sellers financially in the production of the goods or rendering of services.read more from clients, Subscription received, etc.Payments are made for periods other than the period for which accounting records are being prepared—for example, Insurance Premium, etc.

How is it helpful?

Unadjusted Trial Balance is a direct report extracted by a business from its Double Entry Accounting systemDouble Entry Accounting SystemDouble Entry Accounting System is an accounting approach which states that each & every business transaction is recorded in at least 2 accounts, i.e., a Debit & a Credit. Furthermore, the number of transactions entered as the debits must be equivalent to that of the credits. read more. It includes various payments received/made by the business which are not related to the accounting period for which financial statements are to be prepared and, as such, need to be adjusted to provide a correct picture of the business performance for the period for whichFinancial statements are written reports prepared by a company’s management to present the company’s financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more financial statementsFinancial StatementsFinancial statements are written reports prepared by a company’s management to present the company’s financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more are prepared. Also, it helps verify the balance of debitsDebitsDebit represents either an increase in a company’s expenses or a decline in its revenue. read more and credits, which is further reviewed by checking the balance of each account to prepare Adjusting entries as part of the Accounting cycleAccounting CycleAccounting Cycle refers to the process of recording transactions and summarizing them for the preparation of financial statements. The objective is to generate useful information in the form of three financial statements namely Income Statement, Balance Sheet and Cash Flows. read more process, which begins when a transaction occurs and concludes with its inclusion in the financial statements.

Passing of adjusting entries to make an Unadjusted Trial Balance into an Adjusted Trial Balance is the final step after which Financial Statements are prepared, and the correct Adjusting entries must be done, which will ultimately result in the preparation of correct Financial Statements.

Unadjusted Trial Balance Example

ABC Company records its journal entries and posts them to ledger Accounts. Below is the Unadjusted Trial Balance as of Dec 31, 2017

Rent Expense includes payment of $ 1200 for January 2018The Utility ExpenseUtility ExpenseUtilities Expenses are the prices incurred by a Company for the usage of utilities like sewage, electricity, waste disposal, water, broadband, heating, & telephone. These are included as operating expenses in the Company’s income sheet. read more bill of $ 8000 is due in January 2018

Adjusting entries to be passed to adjust the above two expenses are as follows:

Rent Expense
Utility Expense

After that, Adjusting Entries will be passed in the relevant accounts to prepare Adjusted Trial Balance, which is the last step before Financial StatementsFinancial StatementsFinancial statements are written reports prepared by a company’s management to present the company’s financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more are produced.

Use of Unadjusted Trial Balance

The primary purpose is to discover the errors and mistakes that occurred during theBookkeeping is the day-to-day documentation of a company’s financial transactions. These transactions include purchases, sales, receipts, and payments.read more bookkeepingBookkeepingBookkeeping is the day-to-day documentation of a company’s financial transactions. These transactions include purchases, sales, receipts, and payments.read more process.It is also the basis for finding occurred errors for any of the reasons below,Errors of OmissionError of CommissionError of PrincipleCompensating errors

Advantages

It can be used to evaluate the internal control of the business accounting systemAccounting SystemAccounting systems are used by organizations to record financial information such as income, expenses, and other accounting activities. They serve as a key tool for monitoring and tracking the company’s performance and ensuring the smooth operation of the firm.read more.It will be a base for finding the errors and posting adjusting entries by skilled persons.It will also be a base for preparing financial statements after proper adjustment entries.It also supports the audit team in preparing a properAn audit program is a course of action that businesses undertake to comply with regulations.read more audit programAudit ProgramAn audit program is a course of action that businesses undertake to comply with regulations.read more based on the capacity of accountants.

Disadvantages

It cannot be a base for any references to prepare the final reports of the company without further adjustments.Possibilities of errors may be high in the unadjusted trial balance as the works have been done with the primary data.Passing the adjustment entries will be based on identifying errors in the books.The accountant requires high knowledge of accounting standards and applicable GAAP to post the adjusting entries.