Financial statements can be prepared from the information provided by an adjusted trial balance.
Show
Image source: Getty Images Designed to provide the information needed to create closing entries, we’ll guide you through the steps of creating an adjusted trial balance. An adjusted trial balance is an internal document that summarizes all of the current balances available in general ledger accounting. The adjusted trial balance is prepared to show updated balances after adjusting entries have been made. We’ll explain more about what an adjusted trial balance is, and what the difference is between a trial balance and an adjusted trial balance. Overview: What is an adjusted trial balance in accounting?An adjusted trial balance is created after all adjusting entries have been posted into the appropriate general ledger account. The adjusted trial balance is completed to ensure that the period ending financial statements will be accurate and in balance. In addition, an adjusted trial balance is used to prepare closing entries. How to prepare an adjusted trial balancePreparing an adjusted trial balance is the sixth step in the accounting cycle. An adjusted trial balance is prepared by creating a series of journal entries that are designed to account for any transactions that have not yet been completed. These items include payroll expenses, prepaid expenses, and depreciation expenses. Here are the steps used to prepare an adjusted trial balance:
Example of an adjusted trial balanceTo understand what an adjusted trial balance is, we first have to view an unadjusted trial balance as well as the necessary journal entries to complete in order to prepare an adjusted trial balance. Step 1: Run an unadjusted trial balance
The above trial balance is a current summary of all of your general ledger accounts before any adjusting entries are made. Debits and credits should always match in a trial balance. Remember not to confuse adjusting entries with closing entries. Closing entries are completed after the adjusted trial balance is completed. Step 2: Enter adjusting journal entries
The above journal entries were made in order to account for depreciation expenses and prepaid rent. Step 3: Run an adjusted trial balance
As you can see by the adjusted trial balance example above, some of the account totals have now been updated. In this example, the adjusted trial balance shows the changes that affected both the rent and depreciation accounts. For instance, we expensed rent for the month, so we needed to reduce the prepaid rent amount. For depreciation, depreciation expense increased, while accumulated depreciation increased as well. In addition, your adjusted trial balance is used to prepare your closing entries, which is the next step in the accounting cycle. FAQs
Best accounting software for preparing an adjusted trial balanceWhile you can create an adjusting trial balance manually, or by using spreadsheet software, it’s far easier to do so when using accounting software. Here are some of The Ascent’s top picks for creating an adjusted trial balance. For more about these and other accounting software options, check out our accounting software reviews. 1. AccountEdge ProAccountEdge Pro is designed for small and growing businesses. It offers both on-site installation as well as cloud access, and is a good fit for growing businesses that are looking for accounting software that can grow with them. AccountEdge Pro offers an easily navigated user interface. Image source: Author AccountEdge Pro includes an excellent selection of financial reports including a trial balance summary report and a trial balance detail report that provides details on all general ledger accounts currently being used. 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. 2. QuickBooks DesktopQuickBooks Desktop was one of the first accounting software applications to replace common accounting terms such as accounts payable and accounts receivable with more familiar terms such as bills and money owed. As an added bonus, QuickBooks Premier and Enterprise also include industry-specific features designed for nonprofits, manufacturing, or retail businesses. QuickBooks Desktop features are categorized in centers for easier system navigation. Image source: Author QuickBooks Desktop includes excellent reporting and report customization options and includes both a summary and detailed trial balance as well as a working trial balance, which shows beginning totals, adjustments, and ending balances. QuickBooks Desktop offers three plans; Pro, which is $299.95/year, Premier, at $499.95/year, and Enterprise at $849.10/year. 3. Sage 50cloudaccountingA good choice for small and growing businesses, Sage 50cloudaccounting offers a long list of features that business owners will appreciate, such as complete customer and vendor management, integration with Microsoft 365, and solid inventory management. Sage 50cloudaccounting offers three plans, making it easy to scale up to the next plan if necessary. Sage 50cloudaccounting offers a comprehensive company overview dashboard. Image source: Author Sage 50cloudaccounting offers both a summary and detailed trial balance report, along with a comparative trial balance that allows you to compare trial balance totals for two periods. There are also net changes for the period trial balance report that provides a good view of all changes made during an accounting period. Multi-period and departmental trial balance reports are available as well. Sage 50cloudaccounting offers three plans; Pro, which is $278.98 annually, Premium, which runs $431.95 annually, and Quantum, with pricing available from Sage. The adjusted trial balance is key to accurate financial statementsBefore posting any closing entries, you want to make sure that your trial balance reflects the most accurate information possible. Both the unadjusted trial balance and the adjusted trial balance play an important role in ensuring that all of your accounts are in balance and financial statements will reflect the most accurate totals. Can be prepared from the information provided by an adjusted trial balance?Financial statements can be prepared from the information provided by an adjusted trial balance. The adjusted trial balance is the primary basis for the preparation of financial statement.
Which statements can be prepared from the adjusted trial balance?The income statement, statement of shareholders' equity, balance sheet, and statement of cash flows can be prepared from the adjusted trial balance, not the unadjusted trial balance. Adjusting journal entries must be made before preparing the financial statements.
|