Financial Accounting Basics: Part 4 – Unadjusted Trial Balance

2 mins read

This article is an introduction to discuss the Unadjusted Trial Balance, an internal report to summarize account balances in your general ledger.

In Part 3 we posted and created a general ledger. In our example we posted this journal in February when you collected your cash. But let’s fast forward to the end of your financial year on December 31st.

Step 4 – Unadjusted Trial Balance

We need to put together your “Unadjusted Trial Balance.” An internal report that summarizes the closing numbers in all of your general ledger accounts. It can help us check for errors but ultimately, we will use it to make financial statements as you will soon see.

Here is your general ledger for February 28, 2021 again.

Now let’s jump ahead to the end of December and see what your General Ledger looks like.

Building a trial balance is actually quite simple, you list out all of your accounts and their closing balances to ensure the debits equal the credits – balance! and that is about it.

A “Closing Balance,” is the cumulative total of all transactions affecting an account. As usual Debits are on the left and Credits are on the right. At the bottom of your trial balance you have your total debits and total credits and these should match each other exactly because the accounting equation is always equal and must balance.

Trial is another way of saying test, which is what the trial balance was originally used for, as a test to check if your debits and credits are in balance. This is an unadjusted trial balance because we haven’t adjusted it yet, but that’s what’s next because having ended a financial year we need to post some adjusting entries.

To learn about adjusting entries join us for Part 5 as we examine The Accrual Method of Accounting.

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