Trial balance is a simple list of all the balance of the ledger accounts. Usually trial balance is prepared at the end of the accounting period. Most of the organizations prepare monthly financial statements. So, trail balance is also prepared at the end of the month.
An unadjusted trial balance is one which is made without taking month or year end closing entries.
Example # 1
We will use the ledger balances from our previous post Ledger Accounts and Posting to Ledger Accounts.
|
Company XYZ Unadjusted Trial Balance 3O June, 2016 |
||
|
Debit |
Credit |
|
|
Cash |
81,000 |
|
|
Capital |
100,000 |
|
|
Prepaid Rent |
17,000 |
|
|
Computer |
15,000 |
|
|
Electricity Expense |
4,000 |
|
|
Sales Account |
60,000 |
|
|
Accounts Receivable |
40,000 |
|
|
Raw Material |
25,000 |
|
|
Accounts Payable |
25,000 |
|
|
Salaries Expense |
3,000 |
|
|
Total |
185,000 |
185,000 |
Unadjusted trial balance is adjusted for some entries which are called Adjusting Entries.
Example # 2:
Gamma Plc is a company engaged in doing e-commerce business. Following transactions relate to Gamma Plc for the period ended 31 Dec 2016:
- Sales for the year amounts to $5,000,000, 80 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} of the sales are on credit terms.
- Credit purchases are $2,000,000 which is 70 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} of the total purchase.
- Utilities expenses are $300 for the year.
- Entertainment expenses are $200 for the year.
- Rent expense is $1200 for the year ended 31 Dec, 2016.
- Telephone expenses are $800.
- Printing & stationary expenses are $500.
- Postage & cargo expenses are $2,000.
- Long term loan $1,000,000 obtained from bank on 1st The interest payable on this loan is 10 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c}. Amount paid against loan principle amount is 100,000.
- Fixed asset on 1st Jan 2017 is $2,000. Depreciations to be provided @ 10 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c}.
Required: Pass on the journal entries and prepare un-adjusted trial balance.
Solution
- In order to make correct entry for sales, we need to find out cash sales & credit sales figure as well. We can get this figure by multiplying total sales by relevant percentages.
Cash sales: 5,000,000 x 20 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} = $ 1,000,000
Credit sales: 5,000,000 x 80 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} = $ 4,000,000
|
Debit |
Credit |
|
|
Account receivable |
4,000,000 |
|
|
Cash |
1,000,000 |
|
|
Sales |
5,000,000 |
- We need to find out the cash purchase figure which we can get easily by dividing 2,000,000 by 70 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c}.
Total purchase = 2,000,000 / 70 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} = $ 2,857,142
Cash purchase = 2,857,142 – 2,000,000 = $ 857,142
|
Debit |
Credit |
|
|
Purchase |
2,857,142 |
|
|
Cash |
857,142 |
|
|
Accounts payable |
2,000,000 |
- Entries 3 to 8 would be passed on like this:
|
Debit |
Credit |
|
|
Utilities expenses |
300 |
|
|
Entertainment expense |
200 |
|
|
Rent expense |
1,200 |
|
|
Telephone expense |
800 |
|
|
Printing & stationary expense |
500 |
|
|
Postage & cargo expense |
2,000 |
|
|
Cash |
5,000 |
- Loan obtained from bank: Interest expense = 1,000,000 * 10 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} = $ 100,000.
|
Debit |
Credit |
|
|
Cash |
1,000,000 |
|
|
Long term loan |
1,000,000 |
|
|
Long term loan |
100,000 |
|
|
Cash |
100,000 |
|
|
Interest expense |
100,000 |
|
|
Cash |
100,000 |
|
- Fixed assets WDV (Write down value) – 31 Dec 2017 = 2,000 – 2,000 (10{1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c}) = $1800.
|
Debit |
Credit |
|
|
Depreciation expense |
200 |
|
|
Allowance for depreciation |
200 |
Un-adjusted trial balance
|
Particulars |
Debit |
Credit |
|
Accounts receivable (4,000,000) |
4,000,000 |
|
|
Cash (1,000,000 – 857,142 – 5,000 + 1,000,000 -100,000-100,000) |
937,858 |
|
|
Sales (5,000,000) |
5,000,000 |
|
|
Purchase (2,857,142) |
2,857,142 |
|
|
Accounts payable (2,000,000) |
2,000,000 |
|
|
Utilities expenses |
300 |
|
|
Entertainment expense |
200 |
|
|
Rent expense |
1,200 |
|
|
Telephone expense |
800 |
|
|
Printing & stationary expense |
500 |
|
|
Postage & cargo expense |
2,000 |
|
|
Loan term loan (1,000,000 – 100,000) |
900,000 |
|
|
Interest expense (100,000) |
100,000 |
|
|
7,900,000 |
7,900,000 |