Examples and Explanations of the Term “Adjusted Trial Balance”

The Concept of a Test Balance That Has Been Modified

All ledger accounts’ closing balances are included in the Adjusted Trial Balance, which is an internal document. Alternatively, it may be described as a trial balance prepared by accountants after the publication of adjusting journal entries.. Alternatively, it is a trial balance prepared by accountants at year’s end to represent any changes made throughout the year before annual accounts are completed.

Final adjustments are required for a number of things towards the end of the year. If you’ve got accumulated revenues, accrued expenditures, deferred revenues, deferred expenses, amortised expenses, write-offs, etc. Preparing a document of this kind has as its main goal the correction of inaccuracies in the first trial balance and/or the consolidation of costs of a similar sort. Accounting frameworks such as GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards) are the major goals of the financial reporting process (International Financial Reporting Standards).

One thing must be kept in mind at all times. There is no substitute for the trial balance, which is used to begin preparing yearly financial statements. As a result, this trial balance is not included in the typical financial reports.

Trial Balance Adjusted for Other Factors

TB that has been adjusted performs three primary functions:

  • It’s a good way to make sure the totals on your debit and credit cards are in sync. According to accounting rules, the totals of the trial balances (on both the debit and credit sides) should match. There will be a discrepancy in the balance sheet totals if this is the case.
  • For example, the income statement and balance sheet are prepared using this data.
  • Differences between the debit and credit columns point to a problem with either the computations or the entry of transactions into ledgers.

Adjusted Trial Balance Format

Trial balances are quite similar in format to adjusted TBs. As an example, the company name, report title, and date are all included in the header. A list of ledger accounts appears on the left, followed by a column listing account balances (in debit or credit).

The accounts shown in the adjusted TB are typically listed in the same order as those listed in the balance sheet and income statement. Generally speaking, accountants follow the following sequence: assets, liabilities, equity, income, and expenditures (in that order).

It’s simpler to understand financial accounts when they’re presented in this way. In addition, managers may more easily assess the financial effect of each alteration thanks to it.

The debit and credit columns are added together by an accountant after all the account balances have been shown (after any necessary changes). As we stated before, the sum of the two columns should be the same. Unless they are, there has been a mistake (or errors) in publishing the journal entries for adjustments.

It’s customary to finish with the adjusted TB before moving on to the financial statements themselves.

Preparation of Adjusted TB

There are primarily two methods for preparing the adjusted trial balance.

You may use the first method to generate a trial balance, just as you would for an accounting firm. Account balances must be taken into consideration (after posting adjusting entries).

Second, the unadjusted trial balance is used to make the necessary changes, and the results are then added to the applicable accounts. As just a few modifications are required, this is a rapid procedure for producing corrected TB.

Software like AccountEdge Pro, QuickBooks, Sage 50cloud accounting, and others are now available that make it simple to produce an adjusted TB.

Entries to the Trial Balance Adjustments

As previously mentioned, the most common sorts of entries used to correct TB data are as follows:

  • Earned but unrecorded revenue. Accumulated interest is an illustration of each of these types of assets.
  • Costs are not yet documented in the financial records. For instance, wages and salaries are due; interest is due; and so on.
  • Paying an unanticipated bill before the due date. For example, pre-payment of rent, pre-payment of taxes, and so on.
  • Expenses are associated with the depreciation and amortization of assets.
  • Things like bad loans, write-offs, and the like.

What is the difference between a trial balance and a trial balance adjusted?

Both Trial Balance and Adjusted TB have two major differences:

  • A trial balance and a modified trial balance are prepared by accountants initially.
  • There are no adjusting entries, such as accrued expenses, prepayments, depreciation, etc., in TB. All of these entries are included in the TB adjustment.
  • At a given moment in time, a ledger account’s closing balance is shown in the trial balance. However, the ledger account balances are shown in the adjusted TB when the adjusting entries have been posted.

Example of a Trial Balance Adjusted

Company A’s trial balance as of December 31, 2020, is shown below.

ItemDebitCredit
Debtor$75000
Rent$25000
Salary$15000
Cash$20000
Sales$95000
Purchase of Raw Material$50000
Furniture$20000
Loan from Bank$70000
Creditors$40000
Total$205000$205000

Adjusting entries were made once the trial balance was prepared. Prepaid rent is $10,000, and the staff’s pay is $25,000 overdue.

We will create a new outstanding salary account if we adjust the entry for overdue compensation and raise the amount in the salary account. The cash balance is increased and the rent balance is reduced through prepayment.

Now that we’ve accounted for the adjusting inputs, let’s produce an adjusted trial balance.

ItemUnadjustedAdjusting EntriesAdjusted TB
Debtor$75,000$75,000
Rent$25,000($10,000)$15,000
Salary$15,000$25,000$40,000
Cash$20,000$10,000$30,000
Sales($95,000)($95,000)
Purchase of raw material$50,000$50,000
Furniture$20,000$20,000
Loan from Bank($70,000)($70,000)
Creditors($40,000)($40,000)
Outstanding Salary($25,000)($25,000)
Total$0$0

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