An adjusted trial balance is a listing of all company accounts that will appear on the financial statements after year-end adjusting journal entries have been made.
Adjusting entries are prepared at the end of the accounting period for: accrual of income, accrual of expenses, deferrals, prepayments, depreciation, and allowances.
It is prepared after the adjusting entries have been posted in the ledger to ensure that the total of debit balances in the general ledger is equal to the total of credit balances.
USES OF ADJUSTED TRIAL BALANCE
It serves the following purposes :
- To make the entity’s financial statements compatible with the requirements of IFRS (International financial reporting standards ).
- To verify that the total of the debit balances in all accounts equals the total of all credit balances in all accounts .
FORMAT OF ADJUSTED TRIAL BALANCE
The format of adjusted trial balance is exactly same like the unadjusted trial balance.
There are 3 columns which are used to display the account names, debits, and credits with the debit balances listed in the left column and the credit balances are listed on the right.
Both the debit and credit columns are calculated at the bottom of a trial balance. The totals of both debit side & credit side must be equal to ensure the accuracy of trial balance & journal entries .
METHODS OF PREPARING :
Basically, there are 2 methods for preparing the adjusted trial balance which are as follow :-
- The first method is similar to unadjusted trial balance in which the ledger accounts are adjusted for the end of period’s adjusting entries, and the account balance is listed to prepare an adjusted trial balance. But this method is very time consuming & is mainly used by large companies.
- The second method is not very systematic & is preferred by small companies because it requires less adjustments . Here, entries are directly added to the unadjusted trial balance to convert it to an adjusted trial balance.
Thus , in simple words an Adjusted Trial Balance is a list that contains all the accounts and their balances after adjustments have been made & serves as a primary basis for the preparation of financial statements.