Adjusted trial balance example and explanation

Before posting any closing entries, you want to make sure that your trial balance reflects the most accurate information possible. The above journal entries were made in order to account for depreciation expenses and prepaid rent. Both US-based companies and those headquartered in other countries produce the same primary financial statements—Income Statement, Balance Sheet, and Statement of Cash Flows.

When it comes to running a business, finance is one of the most important – and often difficult – areas to understand. There are many different internal documents involved, whether you’re looking after your bookkeeping operations in house or outsourcing a professional accountant. Among these documents is the adjusted trial balance, and it is used to summarize all of the current balances available in the general ledger. 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.

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If we go back and look at the trial balance for Printing Plus, we see that the trial balance shows debits and credits equal to $34,000. You might be wondering why it is such a big deal to organize the trial balance in this manner. The purpose of the trial balance is to make your life easier when preparing financial statements. The first two columns are the account balances of the company after all transactions have been posted.

The unadjusted trial balance on December 31, 2015 and adjusting entries for the month of December are given below. The second method is simple and fast but less systematic and is usually used by small companies where only a few adjusting entries are found at the end of accounting period. In this method, the adjusting entries are directly incorporated to the unadjusted trial balance to convert it to an adjusted trial balance.

What is an unadjusted trial balance?

Service Revenue had a $9,500 credit balance in the trial balance column, and a $600 credit balance in the Adjustments column. To get the $10,100 credit balance in the adjusted trial balance column requires adding together both credits in the trial balance and adjustment columns (9,500 + 600). Once all accounts have balances in the adjusted trial balance columns, add the debits and credits to make sure they https://www.digitalconnectmag.com/a-deep-dive-into-law-firm-bookkeeping/ are equal. If you check the adjusted trial balance for Printing Plus, you will see the same equal balance is present. Once all ledger accounts and their balances are recorded, the debit and credit columns on the adjusted trial balance are totaled to see if the figures in each column match. The final total in the debit column must be the same dollar amount that is determined in the final credit column.

• If your cash is positive, it will go on the the debit side because that’s our normal side and that’s also the side that has the larger sum of the debits.
• Balance sheet accounts are assets, liabilities, and equity accounts, since they appear on a balance sheet.
• Since this is the first month of business for KLO, there is no beginning retained earnings balance.
• The adjusted trial balance is prepared to show updated balances after adjusting entries have been made.

This trial balance is an important step in the accounting process because it helps identify any computational errors throughout the first five steps in the cycle. This is posted to the Prepaid expense T-account on the debit side (left side). This $300 credit is deducted from the $3600 debit (asset accounts have normal debit balances) to get Navigating Law Firm Bookkeeping: Exploring Industry-Specific Insights a final debit balance of $3300. As with the unadjusted trial balance, transferring information from T-accounts 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.