How to Prepare an Adjusted Trial Balance

The above journal entries were made in order to account for depreciation expenses and prepaid rent. Closing entries are completed after the adjusted trial balance is completed. Both US-based companies and those headquartered in other countries produce the same primary financial statements—Income Statement, Balance Sheet, and Statement of Cash Flows. In most cases, we use only one template to prepare the trial balance by including both the unadjusted and adjusted trial balance.

The debit and credit columns both total $34,000, which means they are equal and in balance. However, just because the column totals are equal and in balance, we are still not guaranteed that a mistake is not present. The end result is a decrease in the supplies account and an increase in the supplies expense account balances. This takes care of the cost of supplies used by the company during this accounting period.

Well, the purpose of preparing an adjusted trial balance is to ensure that the financial statements for the period are accurate and up-to-date. It corrects any errors to make the statements compatible with the requirements of an applicable accounting framework. You can use the report to analyze end-of-period performance and it is often applied when creating closing entries, which are journal entries to transfer temporary accounts to permanent accounts. After the unadjusted trial balance is prepared and it appears error-free, a company might look at its financial statements to get an idea of the company’s position before adjustments are made to certain accounts.

In many ways this is faster for smaller companies because very few accounts will need to be altered. The adjustments total of $2,415 balances in the debit and credit columns. Looking at the asset section of the balance sheet, Accumulated Depreciation–Equipment is included as a contra asset account to equipment. The accumulated depreciation ($75) is taken away from the original cost of the equipment ($3,500) to show the book value of equipment ($3,425).

• If you’re manually creating financial statements, it’s the source document.
• An adjusted trial balance is prepared after adjusting entries are made and posted to the ledger.
• As with all financial reports, trial balances are always prepared with a heading.
• This data provides the foundation for your financial statements, but it does not break down transactions by accounting cycle.
• The debit and credit columns both total $34,000, which means they are equal and in balance.

Unearned revenue had a credit balance of $4,000 in the trial balance column, and a debit adjustment of $600 in the adjustment column. Remember that adding debits and credits is like adding positive and negative numbers. This means the $600 debit is subtracted from the $4,000 credit to get a credit balance of $3,400 that is translated to the adjusted trial balance column. The 10-column worksheet is an all-in-one spreadsheet showing the transition of account information from the trial balance through the financial statements.

Preparing the Worksheet

As you can see by the adjusted trial balance example above, some of the account totals have now been updated. In this example, the adjusted trial balance shows the changes that affected both the rent and depreciation accounts. There is a worksheet approach a company may use to make sure end-of-period adjustments translate to the correct financial statements.

According to J.R Batliboi, „A trial balance is a statement, prepared with the debit and credit balances of the ledger accounts to test the arithmetical accuracy of the books.” In a dual entry accounting system, entries are made in debit and credit columns. Increases in assets — the things you own — and expenses are entered in the debit column, while liabilities — or things you owe — and revenues are entered in the credit column. In this system, every transaction involves two accounts, and debits always have to equal credits. Looking at the income statement columns, we see that all revenue and expense accounts are listed in either the debit or credit column.

AccountingTools

Rebekiah received her BBA from Georgia Southwestern State University and her MSM from Troy University. She has experience teaching math to middle school students as well as teaching accounting at the college level. She has a combined total of twelve years of experience working in the accounting and finance fields. In order to keep track of your money, you must record both in the account to which they pertain. Here we’ll go over what exactly this miraculous document is, how to create one, and why it’s such an important part of accounting.

After adjusting entries are made, an adjusted trial balance can be prepared. There were no Depreciation Expense and Accumulated Depreciation in the unadjusted trial balance. Because of the adjusting entry, they will now have a balance of $720 in the adjusted trial balance.

Quick Points of Differences Between Trial Balance and an Adjusted Trial Balance

Debits and credits of a trial balance must tally to ensure that there are no mathematical errors. However, there still could be mistakes or errors in the accounting systems. A trial balance can be used to assess the financial position of a company between full annual audits.

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Ten-Column Worksheets

Both the debit and credit columns are calculated at the bottom of a trial balance. As with the accounting equation, these debit and credit totals must always be equal. If they aren’t equal, the trial balance was prepared incorrectly or the journal entries weren’t transferred to the ledger accounts accurately. Preparing a trial balance for a company serves to detect any mathematical errors that have occurred in the double entry accounting system. If the total debits equal the total credits, the trial balance is considered to be balanced, and there should be no mathematical errors in the ledgers. However, this does not mean that there are no errors in a company’s accounting system.

A trial balance sheet can be adjusted in four different ways which we have seen in the previous sections. In order to understand the what is columnar, let’s focus on what exactly does it mean to “adjust” a trial balance, for real. If you’re doing your accounting by hand, the trial balance is the keystone of your accounting operation. All of your raw financial information flows into it, and useful financial information flows out of it. Financial statements drawn on the basis of this version of trial balance generally comply with major accounting frameworks, like GAAP and IFRS.

This means we must add a credit of $4,665 to the balance sheet column. Once we add the $4,665 to the credit side of the balance sheet column, the two columns equal $30,140. Remember that the balance sheet represents the accounting equation, where assets equal liabilities plus stockholders’ equity. Any difference indicates that there is accounting error in the journal entries or in the ledger or in the calculations. The trial balance is a listing of a company’s accounts and their balances after all the transactions of an accounting period have been recorded. Some of the company’s accounts will need to have an adjusting entry made.

They also make modifications to the trial balance to ensure that just one accounting cycle’s worth of data is included. Once you have a completed, adjusted trial balance in front of you, creating the three major financial statements—the balance sheet, the cash flow statement and the income statement—is fairly straightforward. The trial balance is at the heart of the accounting cycle—a multi-step process that takes in all of your business’ financial transactions, organizes them, and turns them into readable financial statements. If you’ve ever wondered how accountants turn your raw financial data into readable financial reports, the trial balance is how. The trial balance is a list of all your business’ ledger accounts, and how much each of those accounts changed over a particular period of time. You may have also heard it referred to as a trial balance sheet as it should be one worksheet summarizing all of your activity for a certain period in time.

Adjusted Trial Balance Example

This ending retained earnings balance is transferred to the balance sheet. Transferring information from T-accounts to the trial balance requires consideration of the final balance in each account. If the final balance in the ledger account (T-account) is a debit balance, you will record the total in the left column of the trial balance. If the final balance in the ledger account (T-account) is a credit balance, you will record the total in the right column.

It is time for him to begin getting information ready to prepare his company’s quarterly financial statements. Jimmy knows that all the transactions for the quarter have been journalized and posted, so he can create his trial balance report and start working on the worksheet for any adjustments. Marketing Consulting Service Inc. adjusts its ledger accounts at the end of each month. The unadjusted trial balance on December 31, 2015 and adjusting entries for the month of December are given below. An adjusted trial balance is a listing of all company accounts that will appear on the financial statements after year-end adjusting journal entries have been made.