Last editedJul 20212 min read
When it comes to running a business, finance is one of the most important - and often difficult - areas to understand. There are many different internal documents involved, whether you’re looking after your bookkeeping operations in house or outsourcing a professional accountant. Among these documents is the adjusted trial balance, and it is used to summarize all of the current balances available in the general ledger. Read on to find out more.
What is an adjusted trial balance?
An adjusted trial balance lists the general ledger account balances after any adjustments have been made. These adjustments typically include those for prepaid and accrued expenses, as well as non-cash expenses like depreciation. It’s that simple. Prepared at the end of an accounting period - the end of the financial year - the adjusted trial balance is reported on a business’s financial statements, which provide useful information about profits and losses, cash flow and expenses.
What is the purpose of the adjusted trial balance?
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. You can use the report to analyze end-of-period performance and it is often applied when creating closing entries, which are journal entries to transfer temporary accounts to permanent accounts.
Adjusted trial balance example
The adjusted trial balance is prepared by following a similar format to other trial balances. It includes a heading with the company name, the title of the report and the date of the reporting period at the top of the page. Three columns are used. The different account names are listed on the left-hand side, in the first column, and their debit and credit balances are listed in the second and third columns respectively. The accounts are listed in order of:
At the bottom of the table, the debit and credit columns are totaled. To agree with the accounting equation, they must be equal. If the totals of the two columns do not match each other, it means that there is an error.
When you prepare an adjusted trial balance, you can either:
Post the adjusting entries into the ledger account and then adjust the balances accordingly. You can then take the adjusted balances and list them on a trial balance.
Use the unadjusted trial balance, only adding the adjusting entries to the accounts that are affected by the adjustments. Although this method is arguably the easiest, it can only apply to small businesses with few adjusting entries.
What software is available to create an adjusted trial balance?
Ensuring the adjusted trial balance report is presented in a clear, organized way will make it easier for you when it comes to preparing your financial statements at the end of the year. There are many types of software to explore, which can be used to prepare an adjusted trial balance. You can produce it using ExCel, AccountEdge Pro, QuickBooks Desktop and Sage 50cloud, to name just a few common options.
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