How to Prepare an Unadjusted Trial Balance

The unadjusted trial balance serves as an internal report within the accounting cycle. It summarizes all general ledger accounts and their balances at a specific point in time, typically at the end of an accounting period, before any adjustments are made. Its fundamental purpose is to verify that total debit balances equal total credit balances, a foundational principle of the double-entry accounting system. This reconciliation helps identify certain mathematical errors.

The unadjusted trial balance provides a preliminary overview of a company’s financial position, serving as a starting point for further analysis and the preparation of formal financial statements. It acts as a snapshot of account activity derived directly from day-to-day transactions. While it confirms the arithmetic equality of debits and credits, it does not guarantee that all transactions have been recorded correctly or that no errors exist. This report indicates whether accounting records are arithmetically balanced before proceeding to the next stages of the accounting process, such as making adjusting entries.

Gathering Account Information

Preparing an unadjusted trial balance begins with gathering current balance information from every active general ledger account. The general ledger is the complete collection of all accounts used by a business, and each account within it holds a running balance of its transactions. The balances represent the cumulative effect of all financial activities recorded in the journal and subsequently posted to the ledger.

Understanding the normal balance of each account type is important during this data collection phase. Assets, such as cash, accounts receivable, and equipment, typically carry a debit balance. Expenses, including rent, salaries, and utilities, also normally have debit balances. Conversely, liabilities, such as accounts payable and unearned revenue, along with equity accounts like common stock and retained earnings, normally carry a credit balance. Revenue accounts, generated from sales or services, also typically have credit balances. Knowing these normal balances helps in correctly identifying whether an account’s ending balance should appear in the debit or credit column of the trial balance.

Assembling the Trial Balance

Once all account balances are gathered, the next step involves assembling the unadjusted trial balance. This involves creating a document with three columns: account names, debit balances, and credit balances. Accounts are usually listed in the order of a company’s chart of accounts: assets, liabilities, equity, revenues, then expenses. Each general ledger account’s balance is transferred, placed in the appropriate debit or credit column.

For instance, a Cash account (an asset) with a $15,000 balance would be entered in the debit column. An Accounts Payable (a liability) with a $5,000 balance would be recorded in the credit column. This process continues for every active general ledger account, ensuring each balance is correctly assigned to its natural debit or credit side. The final step is to sum the totals of both the debit and credit columns separately. For the trial balance to be considered balanced, the total of all debit balances must equal the total of all credit balances.

Troubleshooting Discrepancies

If, upon summing the debit and credit columns, the unadjusted trial balance does not balance, it indicates an error in the accounting records. An imbalance signifies a mathematical discrepancy that needs to be identified and corrected before financial statements can be prepared. One common reason for an imbalance is a simple addition error when totaling the columns of the trial balance itself, which can be resolved by carefully re-adding the figures. Another frequent issue is a transposition error, where two digits in an amount are accidentally reversed, such as writing $540 instead of $450. These errors often result in a difference that is evenly divisible by nine, which can aid in their detection.

Slide errors, where a decimal point is misplaced (e.g., $500 entered as $50), also lead to imbalances. It is also possible that an amount was posted to the wrong side of an account (e.g., a debit recorded as a credit), or an account might have been entirely omitted from the trial balance. A systematic approach to troubleshooting involves re-verifying individual ledger account balances against the trial balance, checking for correct posting to debit or credit sides, and ensuring no accounts were overlooked. If the error persists, a more detailed review of journal entries and ledger postings may be necessary to pinpoint the exact source.