Adjusted Trial Balance: Definition, Preparation & Example Video & Lesson Transcript

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Before adjusting entries, the books do not accurately reflect the business activity during an accounting period. Once the adjusted trial balance has been prepared, an income statement can be produced. If an income statement is created before the adjusted trial balance is prepared, then it will not be in accordance with GAAP and its revenues and expenses will not accurately reflect the activity for the accounting period being reported. These principles are satisfied through the use of the accrual basis method. Adjusting entries are journal entries made to make sure the revenues and expenses reported in the financial statements reflect the activity during the accounting period being reported. They are an important part of the accrual basis method as most adjusting entries are accruals.

How To Prepare An Adjusted Trial Balance

An adjusted trial balance is an internal document that summarizes all of the current balances available in general ledger accounting. The adjusted trial balance is prepared to show updated balances after adjusting entries have been made. The first two columns are the account balances of the company after all transactions have been posted. These numbers come directly from the balances that appear in the general ledger. The second two columns show the adjustments that have been made to a few accounts.

What is the difference between the trial balance and the adjusted trial balance?

If you review the income statement, you see that net
income is in fact $4,665. The adjusting entries are shown in a separate column, but in aggregate for each account; thus, it may be difficult to discern which specific journal entries impact each account. It is time for him to begin getting information ready to prepare his company’s quarterly financial statements.

How To Prepare An Adjusted Trial Balance

Even if debits and credits balance out, it is still possible that mistakes were made. But if debits and credits do not balance, then it is certain that one mistake or more were made. The 10-column worksheet is an How To Prepare An Adjusted Trial Balance all-in-one
spreadsheet showing the transition of account information from the
trial balance through the financial statements. Accountants use the
10-column worksheet to help calculate end-of-period adjustments.

Adjusted Trial Balance to Income Statement

The adjusted trial balance is completed to ensure that the period ending financial statements will be accurate and in balance. In addition, an adjusted trial balance is used to prepare closing entries. In the Printing Plus case, the credit side is the higher figure
at $10,240. This means
revenues exceed expenses, thus giving the company a net income.

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The adjusted trial balance is a report that lists all the accounts of the company and their balances after adjustments have been made. It ensures that all debits match all credits for the accounting period being reported. These adjusting entries are required for a company to be in compliance with GAAP (Generally Accepted Accounting Principles), which requires the use of the accrual basis method for financial reporting.

Preparing the Worksheet

So you know the textbook definition of the adjusted trial balance, but what is it in layman’s terms, and how do you create one? Well, let me start by taking a step back in the accounting process and talking about the trial balance. The next step in the flow of the accounting cycle is the creation of financial statements which is one of the main reasons a company undergoes the painstaking process. The financial statements are a great tool for both the internal management and third parties to determine the financial performance or position of a company. AccountEdge Pro includes an excellent selection of financial reports including a trial balance summary report and a trial balance detail report that provides details on all general ledger accounts currently being used. While you can create an adjusting trial balance manually, or by using spreadsheet software, it’s far easier to do so when using accounting software.

  • Among these documents is the adjusted trial balance, and it is used to summarize all of the current balances available in the general ledger.
  • There are many types of software to explore, which can be used to prepare an adjusted trial balance.
  • Once all accounts have balances in the adjusted trial
    balance columns, add the debits and credits to make sure they are
  • The adjusting entries for the first 11 months of the year 2015 have already been made.
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