Adjusted Trial Balance Example, Purpose, Preparation, Errors, Next Step

Each item in the trial balance also consists of its balance on its relative debit or credit column. Usually, it enlists balances related to assets, liabilities, equity, income, and expenses. While the definition of the document is relatively straightforward, you’re probably thinking – what is the purpose of the adjusted trial balance? 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.

It can thus be used to create the income statement and balance sheet with accurate information that complies with GAAP. Before preparing the financial statements, an adjusted trial balance is prepared to make sure total debits still equal total credits after adjusting entries have been recorded and posted. In our detailed accounting cycle, we just finished step 5 preparing adjusting journal entries. We will use the same method of posting (ledger card or T-accounts) we used for step 3 as we are just updating the balances.

Unearned Revenues

For depreciation, depreciation expense increased, while accumulated depreciation increased as well. 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. This is to help the preparer of financial statements easily identify which items belong to which class of accounts. And to ensure that financial transactions are arithmetically recorded, the trial balance is prepared.

She has a combined total of twelve years of experience working in the accounting and finance fields. My Accounting Course  is a world-class educational resource developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers. Review the annual report of Stora Enso which is an international company that utilizes the illustrated format in presenting its Balance Sheet, also called the Statement of Financial Position. Before moving on to the next topic, consider the entry that will be needed on the next payday (January 9, 20X9).

Trial Balance: Definition, How It Works, Purpose, and Requirements

Using Paul’s unadjusted trial balance and his adjusted journal entries, we can prepare the adjusted trial balance. Note that only active accounts that will appear on the financial statements must to be listed on the trial balance. If an account has a zero balance, there is no need to list it on the trial balance. Both ways are useful depending on the site of the company and chart of accounts being used.

Remember, you do not change your journal entries for posting — if you debit in an entry you debit when you post. After we post the adjusting entries, it is necessary to check our work and prepare an bookkeeping for startups adjusted trial balance. An adjusted trial balance is a report in which all debit and credit company accounts are listed as they will appear on the financial statements after making adjusting entries.

Example of an Adjusted Trial Balance

However, some versions of this report may also consist of only balance sheet balances. A trial balance is a worksheet with two columns, one for debits and one for credits, that ensures a company’s bookkeeping is mathematically correct. The debits and credits include all business transactions for a company over a certain period, including the sum of such accounts as assets, expenses, liabilities, and revenues.

This will increase the wage expense and create a new liability of wages payable. So I know my adjusted trial balance is right because my debits and my credits are equal. It’s always going to come out the same as long as your debits and your credits are the same. Once the trial balance information is on the worksheet, the next
step is to fill in the adjusting information from the posted
adjusted journal entries.

Why Do the Adjusted Trial Balance

The
statement of retained earnings is prepared second to determine the
ending retained earnings balance for the period. The statement of
retained earnings is prepared before the balance sheet because the
ending retained earnings amount is a required element of the
balance sheet. The following is the Statement of Retained Earnings
for Printing Plus.