What is an Unadjusted Trial Balance?
Definition: An unadjusted trial balance is a representation of raw listings of all ledger accounts for a company in a given accounting period. The info in the unadjusted trial balance is raw because it lacks necessary adjustments. Of the nine main steps of the accounting cycle, preparation of the unadjusted trial balance comes at step four.
Every business must provide its financial information at the end of a particular accounting period. This information is useful to many stakeholders among them the management, shareholders, and regulators. Financial accounting happens in steps to ensure that the information that goes in the various financial statements is correct. This process begins with identification of business events and noting them in journal entries. The journal entries go into various ledger accounts, which, subsequently, go into the unadjusted trial balance.
Unadjusted Trial Balance Format Explained
The general ledger is an aggregation of all the information from the various T-accounts. Usually, this information is too generalized hence the need to place it in a certain order. The unadjusted trial balance, therefore, is an effort by an accountant to prepare accounting information that will be considered when preparing the end-year financial statements. However, the information in the unadjusted trial balance is unreliable in terms of representing the correct financial situation of the business.
An unadjusted trial balance summarizes the financial information of a business at the end of an accounting period. If a company reports its financials quarterly, then there will be an unadjusted trial balance at the end of every three months. The unadjusted trial balance is like the first step towards creating the financial statements for the particular reporting period. Usually, an unadjusted trial balance takes the form of double entry accounting or bookkeeping. Here, an accountant has to make sure that the two sides balance.
How to Prepare an Unadjusted Trial Balance
In an accounting cycle, the unadjusted trial balance comes at the fourth step. Just all other financial statements, an unadjusted trial balance begins with a heading. It comes after a transaction has been posted into the ledger. Under the heading, three lines follow where the first one is the name of the business/company, then the name of the unadjusted trial balance, and lastly, the date of the accounting period.
Usually, the format of the unadjusted trial balance is three columns. The first column contains the description of the accounts. In the second column, the accountant records all debit balances, while the third column records all the credit balances. Every company has a particular order that the follow when recording the ledger accounts in the trial balance. It could be in the order of a serial number as assigned by management.
| Account | Debits | Credits |
| Assets | Balance | |
| Liabilities | Balance | |
| Equity | Balance | |
| Income | Balance | |
| Expenses | Balance | |
| TOTAL | Debits = Credits | Debits = Credits |
Unadjusted Trial Balance Example
An accountant at Company Theta uses information in the ledger accounts to prepare the following unadjusted trial balance.
Company Theta
Unadjusted Trial Balance
For the quarter ended March 31, 2020.
| Accounts | Debits | Credits |
| Property, Plant & Eq. | 150,000 | |
| Office equipment | 100,000 | |
| Accounts receivable | 5,000 | |
| Accounts payable | 6,000 | |
| Share capital | 120,000 | |
| Long term loan | 200,000 | |
| Sales revenue | 120,000 | |
| Marketing expense | 92,000 | |
| Salaries expense | 99,000 | |
| TOTAL | 446,000 | 446,000 |
Unadjusted Trial Balance vs Adjusted Trial Balance – What’s the Difference?
An adjusted trial balance is a more refined version of the unadjusted trial balance. Usually, a company prepares the unadjusted trial balance as a summary of all general ledger accounts. That means it contains unadjusted information, and it may represent a false picture of a company’s financials.
In addition, the debit and credit sides of an unadjusted trial balance don’t always balance. This is because an unadjusted trial balance is prepared when not all journal entries have been entered. Thus, there is an error. On the contrary, an adjusted trial balance considers all necessary adjustments. Therefore, the debit and credit sides in an adjusted trial balance must balance.