Unadjusted vs Adjusted Trial Balance quiz #1 Flashcards
Unadjusted vs Adjusted Trial Balance quiz #1
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What is the primary purpose of preparing an unadjusted trial balance in accounting?
The unadjusted trial balance lists all account balances before adjustments to ensure total debits equal total credits and to provide a starting point for making necessary adjusting entries. How does an adjusted trial balance differ from an unadjusted trial balance?
An adjusted trial balance reflects updated account balances after adjusting entries for items like accrued expenses, prepaid expenses, and depreciation, whereas the unadjusted trial balance shows balances before these adjustments. Why are adjusting entries necessary before preparing financial statements?
Adjusting entries ensure that all revenues and expenses are recorded in the correct period, updating account balances so that the financial statements accurately reflect the company's financial position. In what order are accounts typically listed on a trial balance?
Accounts are listed starting with balance sheet accounts (assets, liabilities, equity), followed by income statement accounts (revenues and expenses). Give an example of an adjusting entry involving prepaid rent and explain its effect on the trial balance.
An adjusting entry for prepaid rent would decrease the prepaid rent asset account and increase the rent expense account, reflecting the portion of rent used during the period and updating the adjusted trial balance. What is the impact of recording accrued salary payable on the adjusted trial balance?
Recording accrued salary payable increases the salary expense and creates or increases the salary payable liability, ensuring expenses and liabilities are properly recognized in the adjusted trial balance. How is depreciation accounted for in the adjusted trial balance?
Depreciation is recorded by increasing depreciation expense and increasing accumulated depreciation, a contra-asset account, which reduces the net value of the related asset in the adjusted trial balance. Why must the adjusted trial balance be prepared before financial statements are created?
The adjusted trial balance provides the final, updated account balances needed to accurately prepare financial statements, ensuring all adjustments have been made. What happens if adjusting entries are not made before preparing the financial statements?
If adjusting entries are not made, the financial statements will be inaccurate, as they will not reflect all revenues earned and expenses incurred during the period. What is the main difference between an unadjusted trial balance and an adjusted trial balance?
An unadjusted trial balance lists account balances before any adjustments, while an adjusted trial balance reflects updated balances after adjusting entries have been made.