An adjusted trial balance consists a list of all ledger accounts and finalized after recording the adjusting entries. Adjusted trial balance contains both the elements of balance sheet and income statement. This is actually can be viewed as the combination of Trial Balance originally developed (Unadjusted Trial Balance) and the adjustments made. It is the fifth step of accounting cycle and the last step before preparing financial statement.
As we discussed Trial Balance is two columnar statement or document which carries closing balances of all the accounts recorded of general ledger. Trial balance can also be termed as a list of closing balances of all ledger account on a specific date. The accounts having debit balances in their respective ledger accounts are inserted on the debit side of Trial balance and similarly accounts possessing credit balances in respective ledger accounts are inserted on the credit side of the Trial balance.
The format of adjusted and Unadjusted Trial Balance is completely alike and there is no significant difference occurs, except for heading to be mentioned at the top of this document which accordingly shifts from ‘unadjusted’ to ‘adjusted’. This is good point to remember that the compulsion of describing ‘adjusted’ is relatively less as comparing to the case of unadjusted trial balance.
The aim working behind the preparation of Adjusted Trial Balance is to prove the accuracy of posting various adjusting entries before stepping into next stage which is preparation of financial statements. Once such a trial balance (adjusted) is developed, the preparation and finalization of financial statements becomes much easier task. This is key to note that Trial Balance is document internally developed for certain purposes including above mentioned and does not constitute the part of financial statements.
The following is the Trial Balance of M/s A Traders as on 31st December.
The following adjustments are to be made in the accounts.
- Supplies on hand as on 31st December is valued at $ 200.
- Unearned commission was 500 $.
- Accrued fee was 100 $.
- Accrued salaries were $ 400.
- Depreciation charges on machinery $ 100 and Furniture $ 50.
- Reserve for bad debts is to be increased by $ 50.
After having proper information regarding adjustments to be made, next step of accounting cycvle
Sine we have passed all the adjusting entries, very next step is to prepare adjusted trial balance by making some changes or modifications in the unadjusted trial balance already prepared, based on these adjustments.
Both sides of adjusted trial balance must be equal. Now we are able to prepare financial statement. It can also be posted to accounting worksheet as well.