If
the final balance in the ledger account (T-account) is a credit
balance, you will record the total in the right column. Once all of the adjusting entries have been posted to the
general ledger, we are ready to start working on preparing the
adjusted trial balance. Preparing an adjusted trial balance is the
sixth step in the accounting cycle. An adjusted trial
balance is a list of all accounts in the general ledger,
including adjusting entries, which have nonzero balances. This
trial balance is an important step in the accounting process
because it helps identify any computational errors throughout the
first five steps in the cycle.

• The purpose of this step is to ensure every financial transaction is recorded correctly.
• After preparing your trial balance this month, you discover that it does not balance.
• The unadjusted trial balance on December 31, 2015 and adjusting entries for the month of December are given below.
• Unfortunately, you will have to go back through one step at a time until you find the error.
• It allows you to examine all of your business’s financial information in one location, help you prepare financial statements, and immediately discover any accounting errors.
• Accountants may use different types of trial balances for specific accounting tasks at different times.

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). The accounting equation is balanced, as
shown on the balance sheet, because total assets equal $29,965 as
do the total liabilities and stockholders’ equity. Remember that the balance sheet represents the
accounting equation, where assets equal liabilities plus
stockholders’ equity.

Format and methods of preparing adjusted trial balance

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. Here’s an up-to-date list of alternatives for the Alliant Credit Union Business Account. We will also introduce a fast and secure global payment wave vs quickbooks vs bonsai solution, Wise Business to will help cut the cost on your international payments and provide smart solutions to your financial transactions. 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.

In this case we added a debit of $4,665 to the income statement column. 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. The next step is to create the unadjusted trial balance by summarizing the credit and debit balances of all journal accounts.

Uses of an Adjusted Trial Balance

Under US GAAP there is no specific requirement on how accounts should be presented. IFRS requires that accounts be classified into current and noncurrent categories for both assets and liabilities, but no specific presentation format is required. Thus, for US companies, the first category always seen on a Balance Sheet is Current Assets, and the first account balance reported is cash.

Why Is It Necessary to Complete an Adjusted Trial Balance?

In the end, accounting software came as a saviour and the double-entry bookkeeping system became the knight in the shining armour for the accountants. Before posting any closing entries, you want to make sure that your trial balance reflects the most accurate information possible. After incorporating the adjustments above, the adjusted trial balance would look like this. Next you will take all of the figures in the adjusted trial
balance columns and carry them over to either the income statement columns or the balance
sheet columns. There is a worksheet approach a company may use to make sure
end-of-period adjustments translate to the correct financial
statements.

The Importance of Accurate Financial Statements

In this lesson, we will discuss what an adjusted trial balance is and illustrate how it works. After the adjusted trial balance is complete, we next prepare
the company’s financial statements. In
Completing the Accounting Cycle, we continue our discussion
of the accounting cycle, completing the last steps of journalizing
and posting closing entries and preparing a post-closing trial
balance.

Gain accounts typically have credit balances, whereas loss accounts typically have debit balances. The adjusted trial balance is the key point to ensure all debits
and credits are in the general ledger accounts balance before
information is transferred to financial statements. Budgeting for
employee salaries, revenue expectations, sales prices, expense
reductions, and long-term growth strategies are all impacted by
what is provided on the financial statements.

Unfortunately, you will have to go back through one step at a time until you find the error. 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. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.