Lecture Notes on Unadjusted Trial Balance

Introduction to Unadjusted Trial Balance

• Purpose: Take balances from T accounts and list them in a trial balance.
• Objective: Ensure total debits equal total credits.
• Order: Accounts are listed by liquidity, starting with assets, followed by liabilities, and then equity.

Uses of Trial Balance

• To confirm that debits equal credits.
• To detect any mistakes before adjusting journal entries.
• Critical for preparing financial statements.

Order of Accounts

• Assets: Listed by liquidity.
  • Cash
  • Accounts Receivable
  • Office Supplies
  • Prepaid Rent
  • Furniture
  • Building
  • Land
• Liabilities: Often have "payable" in their names.
  • Accounts Payable
  • Unearned Revenue
  • Notes Payable
• Equity and Expenses
  • Common Stock
  • Dividends
  • Service Revenue
  • Rent Expense
  • Salaries Expense
  • Utilities Expense

Preparing the Unadjusted Trial Balance

• Transfer Balances: Transfer balances from T accounts to the trial balance.
• Highlighting: Use colors to differentiate asset, liability, and equity accounts.
• Check Totals: Use Excel to sum the debit and credit columns to ensure they balance.

Solving for Missing Balances

• If any account balance is missing, calculate the difference in debits and credits.
  • Example: Missing Unearned Revenue.
  • Calculate the difference to determine the missing balance.

Preparing Financial Statements

• Use of Trial Balance: Used to prepare financial statements post adjustments.
• Adjustments: Adjustments are made in subsequent chapters.

Tips for Accounting Practice

• Balance Checking: If debits and credits do not equal, check the difference.
• Divide by Two/Nine: Useful for detecting errors in number transpositions.

The Accounting Cycle

• Journal Entries: Start with a beginning balance, enter transactions, and total them for the trial balance.
• Unadjusted Trial Balance: Prepared before adjustments.

Debt Ratio

• Purpose: Evaluate how much of assets are financed by debt versus equity.
• PepsiCo Example: Illustrates a high debt ratio (82%) compared to equity.
• Industry Comparison: Compare company's debt ratio to industry averages.

Conclusion

• Ensures understanding of trial balance before adjustments.
• Emphasizes importance of comparing financial metrics to industry standards.