Business

Adjusted trial balance: Definition, preparation and example

Wise

30.01.20 (updated more than 1 year ago)

Read time 4 minutes

To prove the quality of the total debit and credit balances, accountants prepare an adjusted trial balance. If you have to prepare one and don't know where to start, we'll share a few basics in this article to help you out.

This article will cover the following topics:

How to prepare an adjusted trial balance
Example of an adjusted trial balance
How to cut the cost on your financial transactions

What is an adjusted trial balance?

An adjusted trial balance represents a listing of all the account balances after posting of all the necessary adjusting entries in ledger accounts.¹ The purpose of preparing an adjusted trial balance is to correct any errors and to make the entity’s financial statements compatible with the requirements of an applicable accounting framework such as international financial reporting standards (IFRS).

How to prepare an adjusted trial balance

An adjusted trial balance is prepared using the same format as that of an unadjusted trial balance.

Preparation of an adjusted trial balance starts with a heading consisting of three lines. First line indicates the name of the company, second line states the name of the trial balance and third line states the date of the reporting period for which the trial balance is prepared. ² (example below)

ABC Company
Unadjusted Trial Balance
For the year ended December 31, 2019

Three columns are used with first column showing names of account balances, while second and third column showing debit and credit balances respectively. (example below)

Account	Debits	Credits
Property,plant & equipment	152,000
Furniture & Fixtures	114,000
Inventory	6,400

Account balances are listed in the adjusted trial balance using either their respective account numbers given to them in a chart of accounts or using the balance sheet order by starting with assets, liabilities and equity first and then entering the income and expense accounts. You can find an example balance sheet and use our free balance sheet template.
Since journal entries are made using double entry bookkeeping process, thus totals of the debit and credit columns must match with each other. If the totals of the two columns do not match with each other it means that there is some error in making of journal entries or their posting in to general ledger.
Adjusting entries are made at the end of an accounting period to adjust ledger accounts so that they comply with rules of accrual accounting. Main purpose of adjusting entries is to match incomes and expenses to appropriate accounting periods.
There are five types of adjusting entries that are required to be made at the end of the accounting period. Accrued revenues, accrued expenses, deferred revenues, deferred expenses and depreciation expense require adjusting entries so as to accurately reflect the accrual method of accounting.³
There are two methods of preparing an adjusted trial balance.⁴
First, you can post the adjusting entries into the ledger account and adjust the ledger balances accordingly. Once posting is complete, you can
take the adjusted balances and list them on a trial balance. This method is similar to preparing an unadjusted trial balance as you are simply taking the account balances from ledger accounts and are listing them in a trial balance.
Secondly, you can use the unadjusted trial balance and can only add the adjusting entries to the accounts that are affected by the adjustments. This method is simple and easy to implement, however, only small businesses with few adjusting entries can use this method.

Example of an adjusted trial balance

These examples will show you how to adjust an unadjusted trial balance looks like.

ABC Company
Unadjusted Trial Balance
For the year ended December 31, 2019

Account	Debits	Credits
Property,plant & equipment	152,000
Furniture & Fixtures	114,000
Inventory	6,400
Accounts receivables	12,200
Cash	18,000
Long term Loan		74,000
Accounts Payable		6,400
Share capital		100,000
Retained earnings		88,000
Sales Revenue		114,600
Salaries expense	52,000
Marketing expenses	14,000
Interest expense	8,000
TOTAL	383,000	383,000

ABC Company has $12,000 in salaries that were unpaid as of the end of December, as well as $8,000 of earned but unbilled sales. We will use the unadjusted trial balance of ABC Company and will pass the necessary adjusting entries in the trial balance and will prepare an adjusted trial balance.⁶

Adjustments from unadjusted trial balance

Account	Debit	Credit
Property, plant & equipment
Furniture & Fixtures
Inventory
Accounts receivables	8000
Cash
Long term Loan
Accrued Liabilities		12000
Accounts Payable
Share capital
Retained earnings
Sales Revenue		8000
Salaries expense	12000
Marketing expenses
Interest expense
TOTAL	20000	20000

Adjusted trial balance

Account	Debit	Credit
Property, plant & equipment	152000
Furniture & Fixtures	114000
Inventory	6400
Accounts receivables	20200
Cash	24400
Long term Loan		74000
Accrued Liabilities		12000
Accounts Payable		6400
Share capital		100000
Retained earnings		88000
Sales Revenue		122600
Salaries expense	64000
Marketing expenses	14000
Interest expense	8000
TOTAL	403000	403000

With an adjusted trial balance, necessary adjusting journal entries are incorporated in the trial balance. In the above example, unrecorded liability related to unpaid salaries and unrecorded revenue amount has been included in the adjusted trial balance. This trial balance is then used to prepare financial statements.

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