What is an Adjusted Trial Balance and How Do You Prepare One? Bench Accounting

For example, Interest Receivable is an adjusted account that has a final balance of $140 on the debit side. This balance is transferred to the Interest Receivable account in the debit column on the adjusted trial balance. Accumulated Depreciation–Equipment ($75), Salaries Payable ($1,500), Unearned Revenue ($3,400), Service Revenue ($10,100), and Interest Revenue ($140) all have credit final balances in their T-accounts. These credit balances would transfer to the credit column on the adjusted trial balance. As with the unadjusted trial balance, transferring information from T-accounts accounting for startups to the adjusted trial balance requires consideration of the final balance in each account. If the final balance in the ledger account (T-account) is a debit balance, you will record the total in the left column of the trial balance.

Total expenses are subtracted from total revenues to get a net income of $4,665. If total expenses were more than total revenues, Printing Plus would have a net loss rather than a net income. This net income figure is used to prepare the statement of retained earnings. At this point you might be wondering what the big deal is with trial balances.

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1. Multi-period and departmental trial balance reports are available as well.
2. If total expenses were more than total revenues, Printing Plus would have a net loss rather than a net income.
3. Such expenses might include paying for a rented space or any upcoming payments in the queue.
4. In the latter case, the adjusted trial balance is critically important – financial statements cannot be constructed without it.

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If the debit and credit columns equal each other, it means the expenses equal the revenues. 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. The trial balance information for Printing Plus is shown previously. If we go back and look at the trial balance for Printing Plus, we see that superstream improves the australian superannuation system the trial balance shows debits and credits equal to $34,000. To exemplify the procedure of preparing an adjusted trial balance, we shall take an unadjusted trial balance and convert the same into an adjusted trial balance by incorporating some adjusting entries into it.

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Take a couple of minutes and fill in the income statement and balance sheet columns. The adjustments total of $2,415 balances in the debit and credit columns. The accounts that have been affected because of adjusting entries for the month of December are shown in red font in the adjusted trial balance. It is just for the purpose of explanation, and you don’t need to change the color of account titles in your homework assignments or examination questions. Once all the accounts are posted, you have to check to see whether it is in balance. Note that only active accounts that will appear on the financial statements must to be listed on the trial balance.

There are also net changes for the period trial balance report that provides a good view of all changes made during an accounting period. In addition, your adjusted trial balance is used to prepare your closing entries, which is the next step in the accounting cycle. As you can see by the adjusted trial balance example above, some of the account totals have now been updated.

5 Prepare Financial Statements Using the Adjusted Trial Balance

All of your raw financial information flows into it, and useful financial information flows out of it. After incorporating the $900 credit adjustment, the balance will now be $600 (debit). QuickBooks 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. 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. At some point, you’ll want to make sense of all those financial transactions you’ve recorded in your ledger.

As the name suggests, it includes deductions with respect to the tax liabilities. Financial statements give a glimpse into the operations of a company, and investors, lenders, owners, and others rely on the accuracy of this information when making future investing, lending, and growth decisions. When one of these statements is inaccurate, the financial implications are great. My Accounting Course  is a world-class educational resource developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers. Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career.

The above journal entries were made in order to account for depreciation expenses and prepaid rent. Applying all of these adjusting entries turns your unadjusted trial balance into an adjusted trial balance. Adjusting entries are all about making sure that your financial statements only contain information that is relevant to the particular period of time you’re interested in.