How to Prepare an Adjusted Trial Balance?

Posted In | Finance | Accounting Software

Adjusted trial balance is a financial statement that lists all of the accounts in a company's general ledger and their end-of-period balances. It is prepared after the company has made all of its adjusting entries for the period and is used to ensure that the company's books are in balance before the financial statements are prepared. Here's how to prepare an adjusted trial balance. Using accounting software can significantly reduce the likelihood of errors and save time in preparing an adjusted trial balance. However, it's still important to review the report carefully to ensure accuracy before proceeding with the preparation of financial statements.

 

 

How to Prepare an Adjusted Trial Balance?

Step 1: 

To prepare an adjusted trial balance, start by listing all of the accounts in the company's general ledger, along with their end-of-period balances. These balances should reflect any adjusting entries that have been made for the period.

 

Step 2:

Next, check each account to make sure that its balance is correct. This may involve reconciling the account with supporting documentation, such as bank statements and receipts. If you find any errors or discrepancies, make the necessary corrections to the account balances.

 

Step 3:

Once you've reviewed and corrected the account balances, total the debits and credits for each account. The debits and credits for each account should be equal, and the total debits and total credits for all accounts should be equal as well. This is known as the "law of double entry," and it is an important principle of accounting.

 

Step 4:

Once you've ensured that the debits and credits for all accounts are equal and the total debits and credits are equal, you're ready to prepare the adjusted trial balance. This is simply a matter of listing the account names and balances in a table, with the debits on one side and the credits on the other.

 

Note: If the debits and credits for any account are not equal, or if the total debits and credits are not equal, you'll need to investigate the cause of the imbalance and make any necessary corrections. This may involve identifying and correcting errors in the original journal entries, or making additional adjusting entries to correct the imbalance.

 

Example of Adjusted Trial Balance

Here is an example of an adjusted trial balance:

 

Account	Debit	Credit
Cash	$10,000
Accounts Receivable	$12,000
Inventory	$15,000
Prepaid Rent	$2,000
Buildings	$30,000
Equipment	$10,000
Accumulated Depreciation - Buildings	$6,000
Accumulated Depreciation - Equipment	$4,000
Accounts Payable	$7,000
Salaries Payable	$1,000
Interest Payable	$500
Unearned Revenue	$2,000
Common Stock	$20,000
Retained Earnings	$17,000
Service Revenue	$31,000
Rent Expense	$9,000
Depreciation Expense - Buildings	$1,000
Depreciation Expense - Equipment	$500
Interest Expense	$100
	$109,000	$109,000

 

In this example, the adjusted trial balance shows that the total debit balances equal the total credit balances, indicating that the company's accounting records are in balance.

 

Frequently Asked Questions: 

1. Is an adjusted trial balance a debit or credit?

An adjusted trial balance is a list of all the accounts in a company's accounting system, along with their balances after any adjusting entries have been made. It is not a debit or credit on its own, but rather a summary of the balances of all the accounts in the accounting system. The individual accounts in an adjusted trial balance may have debit or credit balances, depending on their nature. For example, an expense account typically has a debit balance, while a revenue account typically has a credit balance. However, the total of all the debit balances in an adjusted trial balance must be equal to the total of all the credit balances in order for the accounting records to be in balance.

 

2. What are the two types of trial balance?

The two types of trial balance are the unadjusted trial balance and the adjusted trial balance.

 

3. What are the 3 Limitations of trial balance?

The three limitations of a trial balance are:

1. A trial balance only covers the accounts in a company's general ledger, and does not include accounts in subsidiary ledgers, such as accounts receivable and accounts payable. This means that a trial balance may not provide a complete picture of a company's financial position.
2. A trial balance only reflects the balances of accounts as of a specific point in time. It does not provide information about the transactions that led to those balances, or any changes in those balances over time.
3. A trial balance only checks the mathematical accuracy of the debits and credits in a company's accounting records, and does not check the underlying transactions for accuracy or completeness. This means that a trial balance may not identify errors or irregularities in a company's financial statements.