Online Accounting
Accounting Training: The Adjusted Trial Balance in the Accounting Cycle
| The adjusted trial balance lists the account balances in the general ledger after the adjusting entries are made. |
The adjusted trial balance sheet is used to verify the balance of debits and credits after the adjusting entries are made in the accounting cycle, and to review the balances of each account in preparation of closing entries in the next step in the accounting cycle.
Companies will generally prepare the accounting trial balance on a monthly or quarterly basis, in addition to year-end, in preparation of periodic financial statements.
A sample trial balance appears below for Sunny Sunglasses Shop for January 2010, with each account affected by the adjusting entries highlighted.
Sunny Sunglasses Shop
Adjusted Trial Balance
January 31, 2010
Adjusted Trial Balance with Adjusting Entries Highlighted
The account balances in the general ledger are each carried over into the adjusted trial balance sheet.
The adjusted trial balance now contains all of the general ledger accounts active after the adjusting entry process.
Two new general ledger accounts were added after estimating the uncollectible amount of accounts receivable: Allowance for doubtful accounts, and bad debt expense. The allowance for doubtful accounts reduces the asset, accounts receivable, by $58. The bad debt expense reduces net income and, consequently, owner’s equity, in January.
Adjusting Entries for Accounts Receivable Reduces Assets and Owners Equity
| Assets | = Liabilities | + Owner’s Equity |
| <$58> | = $0 | + <$58> |
The adjusting entries process added five other new accounts in the adjusted trial balance: interest payable, payroll taxes payable, wages payable, insurance expense, and interest expense.
The other three accounts highlighted, prepaid insurance, payroll taxes, and wages, had additional activity as a result of the adjusting entries.
The debit column lists the total of assets, cost of goods sold, and expenses. The credit column lists the total liabilities, owners equity, and revenue accounts. After the adjusting entries are made, the total debits equal the total credits.
The accounting trial balance contains all of the information that Sunny Sunglasses Shop needs to prepare closing entries and the financial statements for January.
Summary of the Adjusted Trial Balance
The adjusted trial balance worksheet serves two main purposes:
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