Adjusted Trial Balance Definition
Adjusted Trial Balance of the company in the non-financial statement in which the list and the balances of the company’s all the accounts are presented after the adjusting journal entries are made at the year-end and those balances are then reported on respective financial statements.
In simple words, when accounts are prepared at the end of accounting period, ledger balances are also required to be updated with relevant adjustments which are results of the partial transaction, improper transactions, and transactions which were skipped. Such types of transactions are deposits, closing stocks, depreciation etc. Once all necessary adjustments are done a new second trial balance is prepared to ensure that it is still balanced. This new trial balance is called the adjusted trial balance.
Entries in an Adjusted Trial Balance
#1 – Accrual of revenue that was earned but was not yet recorded.
This arises when an asset is a sale but customer not yet billed for the same. Eg. Account receivable, accrued interest.
Accrued revenue A/C – Dr
Revenue A/C- Cr
#2 – Accrual of expenses that were incurred but were not yet recorded.
This is an expense recorded in accounts before the payment is made. Eg Interest payable, salaries and wages payable.
Expense A/C- Dr
Expense payable- Cr
#3 – Prepayments
Prepayment is the setting of a payment prior to its due date. Eg. Prepaid rent.
Prepaid expense A/C- Dr
Cash A/C- Cr
#4 – Depreciation
Depreciation is a non-cash expense which is identified in order to account for the deterioration of fixed assets to reflect the reduction in useful economic life.
Adjusted Trial Balance Example
To understand this better let us see the examples
Suppose a printing company name ACE Prints run a small business of printing, their trial balance as on 31st March’2018 is below:-
We get clear information from trial balance about debit entries and credit entries. But there is some more information which is required for adjustment of trial balance.
- The salary due to the employee as on 31st March’2018=$ 50,000
- Rent is inclusive of refundable deposit of= $ 20,000
Now, the adjustments need to be done in trial balance for the above details.
Below entry is done in the Salary account.
Here, the adjustment will be done of $ 80,000.00 as total salary payable is $ 80,000.
Below entry is done in the Rent account.
Here, the adjustment will be done of $ 50,000.00 as rent deposit is $ 20,000, rent payable will be $ 30,000.
Adjusted trial balance will be as follows:-
The adjustments are done as below:-
- Rent deposit is taken into consideration.
- Outstanding salary also included in it.
Hence, the trial balance made includes all considerable adjustments and this is termed as adjustment trial balance.
How to Prepare Adjusted Trial Balance?
There are two methods for the preparation –
- The method first is similar to the preparation of an unadjusted trial balance. The ledger accounts are adjusted for the end of periods adjusting entries and the account balance are listed to prepare an adjusted trial balance. This method takes a lot of time but it is very systematic and is usually used by large companies where a lot of adjustment need to made by companies in their ledger accounts.
- The second method is quite simple and fast but it is not very systematic and usually used by small companies where less adjustment needs to be done. In this adjustment, entries are directly added to the unadjusted trial balance to convert it to an adjusted trial balance.
- The main purpose of adjusted trial balance is a document that shows the total amount of debt against the total amount of credit. This is not considered as a financial statement, because it is only used as an internal document.
- Hence, it is very useful in big companies to adjust many entries. It also ensures that entries are done correctly if balances entered into financial statement are incorrect, the financial statements themselves will be inaccurate and the total must be equal.
- Any difference indicates that there is some error in entries, ledger or in the calculations. It also helps to monitor the performance of the company as adjusted trial balance is prepared after considering all adjustments of entries of different accounts and so it gives a clear picture of the performance of the company.
Difference Between Trial Balance and Adjusted Trial Balance
- A trial balance is prepared first whereas adjusted trial prepared post-trial balance. Trial balance excludes entries like accrued expense, accrued revenue, prepayment and depreciation whereas adjusted trial balance includes the same.
- A trial balance is a list of closing balances of ledger account on a certain point of time whereas adjusted balance is a list of general accounts and their balances at a point of time after the adjusted entries have been posted.
Adjusted Trial Balance Video
This has been a guide to what is Adjusted Trial Balance? Here we discuss adjusted trial balance examples, its preparation, and purpose along with journal entries. You may learn more about accounting from the following articles –