4 5: Prepare Financial Statements Using the Adjusted Trial Balance Business LibreTexts

4 5: Prepare Financial Statements Using the Adjusted Trial Balance Business LibreTexts

adjusted trial balance example

There are five sets of columns, each set having a column for debit and credit, for a total of 10 columns. The five column sets are the trial balance, adjustments, adjusted trial balance, income statement, and the balance sheet. After a company posts its day-to-day journal entries, it can begin transferring that information to the trial balance columns of the 10-column worksheet. 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.

As you see in step 6 of the accounting cycle, we create another trial balance that is adjusted (see The Adjustment Process). Enter transactions that zero out the sums in these temporary accounts and shift the funds into permanent accounts to post-closure entries. Temporary accounts are those that only hold funds for a single accounting period, whereas permanent accounts are those that hold cash for several accounting periods. By keeping cash flow distinct from retained earnings until your accounts are balanced, you can measure how much money your firm produces in a single accounting quarter. As computerised accounting systems automatically create financial statements, the second use of the adjusted trial balance has gone out of favour.

Statement of Retained Earnings

The statement of change in equity always leads with beginning retained earnings. Beginning retained earnings carry over from the previous period’s ending retained earnings balance. Since this is the first month of business for KLO, there is no beginning retained earnings balance. Notice the net income of $5400 from the income statement is carried over to the statement of change in equity. Dividends are taken away from the sum of beginning retained earnings and net income to get the ending retained earnings balance of $5300 for the current month. This ending retained earnings balance is transferred to the balance sheet.

adjusted trial balance example

In the Universal CPA Review FAR materials, we simulate the experience of starting with an unadjusted trial balance, recording several key adjusting entries, and then arriving at the adjusted trial balance. The key thing to remember is that the debits and credits must always sum to $0, and the adjusting/adjusted trial balance must also sum to $0. Since the debit and credit columns equal each other totaling a zero balance, we can move in the year-end financial statement preparation process and finish the accounting cycle for the period. For instance, in our vehicle sale example the bookkeeper could have accidentally debited accounts receivable instead of cash when the vehicle was sold. The debits would still equal the credits, but the individual accounts are incorrect.

Financial Statements

If
the debit column were larger, this would mean the expenses were
larger than revenues, leading to a net loss. You want to calculate
the net income and enter it onto the worksheet. The $4,665 net
income is found by taking the credit of $10,240 and subtracting the
debit of $5,575. When entering net income, it should be written in
the column with the lower total. You then add together the $5,575 and $4,665 to get
a total of $10,240.

This would happen if a company broke even, meaning the company did not make or lose any money. If there is a difference between the two numbers, that difference is the amount of net income, or net loss, the company has earned. To get the numbers in these columns, you take the number in the trial balance column and add or subtract any number found in the adjustment column. There is no adjustment in the adjustment columns, so the Cash balance from the unadjusted balance column is transferred over to the adjusted trial balance columns at $24,800. Interest Receivable did not exist in the trial balance information, so the balance in the adjustment column of $140 is transferred over to the adjusted trial balance column. The trial balance information for Printing Plus is shown previously.

Ten-Column Worksheets

The adjusted trial balance is what you get when you take all of the adjusting entries from the previous step and apply them to the unadjusted trial balance. It should look exactly like your unadjusted trial balance, save for any deferrals, accruals, missing transactions or tax adjustments you made. Once you’ve double checked that you’ve recorded your debit and credit entries transactions properly and confirmed adjusted trial balance example the account totals are correct, it’s time to make adjusting entries. The trial balance is at the heart of the accounting cycle—a multi-step process that takes in all of your business’ financial transactions, organizes them, and turns them into readable financial statements. If you’ve ever wondered how accountants turn your raw financial data into readable financial reports, the trial balance is how.

adjusted trial balance example

As you have learned, the adjusted trial balance is an important step in the accounting process. But outside of the accounting department, why is the adjusted trial balance important to the rest of the organisation? An employee or customer may not immediately see the impact of the adjusted trial balance on his or her involvement with the business. This is posted to the Accounts Receivable T-account on the debit side (left side). You will notice there is already a debit balance in this account from Transaction 4 in Chapter 2. The $1500 debit is added to the $5500 debit to get a final balance of $7000 (debit).

Adjusted trial balance: Definition, preparation and example

Double-entry accounting (or double-entry bookkeeping) tracks where your money comes from and where it’s going. As an added bonus, QuickBooks Premier and Enterprise also include industry-specific features designed for nonprofits, manufacturing, or retail businesses. AccountEdge Pro pricing varies, depending on whether you choose the on-premise application or opt for cloud connectivity. AccountEdge Pro’s on-site application charges a one-time fee of $399, while the cloud application, Priority Zoom, starts at $50/month for up to 5 users, with additional licenses $50/month.

  • In the Printing Plus case, the credit side is the higher figure at $10,240.
  • If you review the income statement, you see that net income is in fact $4,665.
  • Once the trial balance information is on the worksheet, the next step is to fill in the adjusting information from the posted adjusted journal entries.
  • Not every business transaction produces an original source document that will alert the need to make an entry in the accounting system.
  • A more complete picture of company position develops after adjustments occur, and an adjusted trial balance has been prepared.
  • These next steps in the accounting cycle are covered in The Adjustment Process.
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