How to prepare the unadjusted trial balance making adjustments in the adjustment column
The correct answer and explanation is:
To prepare the unadjusted trial balance with adjustments in the adjustment column, follow these steps:
- Prepare the Unadjusted Trial Balance:
Start by listing all accounts from the general ledger. Include assets, liabilities, equity, revenues, and expenses. Record the balances of each account in the unadjusted trial balance columns. For instance, debit balances go in the debit column, and credit balances go in the credit column. The total of the debit column should equal the total of the credit column. This step ensures that the basic trial balance is accurate before any adjustments. - Identify Adjustment Entries:
Next, determine the necessary adjustments. These are typically required to account for transactions that were not recorded, such as depreciation, accruals, or prepaid expenses. For example, if a company has incurred an expense that hasn’t been recorded, an adjusting entry is needed to reflect that expense in the financial statements. Common adjustments include accrued revenues, accrued expenses, prepaid expenses, and unearned revenues. - Record Adjustments in the Adjustment Column:
In the trial balance worksheet, create an “Adjustment” column next to the unadjusted trial balance. For each adjusting entry, note the amount and whether it should be added to or subtracted from the respective account. Adjustments are recorded in both the debit and credit columns depending on whether the account being adjusted is an asset, liability, revenue, or expense. - Post Adjustments to the Trial Balance:
After making adjustments in the adjustment column, update the unadjusted trial balance with the adjusted balances. Add or subtract the adjustment amounts to the original balances. This creates a new column showing the adjusted trial balance. The totals of the debit and credit columns must still be equal, ensuring the trial balance remains balanced. - Final Check:
After updating the trial balance with adjustments, verify that the new totals in both the debit and credit columns match. If they don’t, check the adjustments again to ensure they were properly entered. The adjusted trial balance will serve as the basis for preparing the financial statements.
In conclusion, preparing an unadjusted trial balance with adjustments involves organizing the unadjusted balances first, making necessary adjustments, and then updating the trial balance. This process ensures that all transactions are accurately reflected in the financial statements.