When accounts are prepared at the end of the accounting period, ledger balances must be updated with relevant adjustments, which are the results of the partial transaction, improper transactions, and skipped transactions. Such types of transactions are deposits, Closing Stocks, depreciation, etc. Once all necessary adjustments are made, a new second trial balance is prepared to ensure that it is still balanced. To get the numbers in these columns, you take the number in thetrial balance column and add or subtract any number found in theadjustment column.

Step 3: Run an adjusted trial balance

There are five sets of columns, each set having a column for debit and credit, for a total of 10 columns. The five column sets are the trial balance, adjustments, adjusted trial balance, income statement, and the balance sheet. After a company posts its day-to-day journal entries, it can begin transferring that information to the trial balance columns of the 10-column worksheet. There are five sets of columns, each set having a column fordebit and credit, for a total of 10 columns. The five column setsare the trial balance, adjustments, adjusted trial balance, incomestatement, and the balance sheet.

1. If the debit column were larger, this would mean the expenses were larger than revenues, leading to a net loss.
2. An adjusted trial balance is a listing of all company accounts that will appear on the financial statements after year-end adjusting journal entries have been made.
3. If an account has a zero balance, there is no need to list it on the trial balance.
4. Thus, for US companies, the first category always seen on a Balance Sheet is Current Assets, and the first account balance reported is cash.

Adjusted Trial Balance Explained

Once we add the $4,665 to thecredit side of the balance sheet column, the two columns net pay meaning equal$30,140. Looking at the income statement columns, we see that all revenueand expense accounts are listed in either the debit or creditcolumn. This is a reminder that the income statement itself doesnot organize information into debits and credits, but we do usethis presentation on a 10-column worksheet.

The following is the Statement of Retained Earnings for Printing Plus. 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.

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. There are instances when companies end up missing out mentioning the transactions that have occurred in the bookkeeping records. The adjusting entries in the example are for the accrual of $25,000 in salaries that were unpaid as of the end of July, as well as for $50,000 of earned but unbilled sales.

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 next step is to record information in the adjusted trial balance columns. You may notice that dividends are included in our 10-columnworksheet about schedule a form itemized deductions balance sheet columns even though this account is notincluded on a balance sheet. There isactually a very good reason we put dividends in the balance sheetcolumns.

Format and methods of preparing adjusted trial balance

There are multiple financial statements that are prepared by the businesses at the end of a financial year. Still, they prepare an adjusted trial balance as a ready reference. Its purpose is to ensure that the total amount of Debit Balance in the general ledger is equal to the total amount of Credit Balance in the general ledger.

The accounts of a Balance Sheet using IFRS mightappear as shown here. Looking at the asset section of the balance sheet, AccumulatedDepreciation–Equipment is included as a contra asset account toequipment. The accumulated depreciation ($75) is taken away fromthe original cost of the equipment ($3,500) to show the book valueof equipment ($3,425). The accounting equation is balanced, asshown on the balance sheet, because total assets equal $29,965 asdo the total liabilities and stockholders’ equity. Remember that the balance sheet represents theaccounting equation, where assets equal liabilities plusstockholders’ equity. An adjusted trial balance is an internal document that summarizes all of the current balances available in general ledger accounting.

Step 2: Enter adjusting journal entries

To prepare the financial statements, a company will look at the adjusted trial balance for account information. From this information, the company will begin constructing each of the statements, beginning with the income statement. Income statements will include all revenue and expense accounts. The statement of retained earnings will include beginning retained earnings, any net income (loss) (found on the income statement), and dividends. The balance sheet is going to include assets, contra assets, liabilities, and stockholder equity accounts, including ending retained earnings and common stock.

Take a couple of minutes and fill in the income statement and balance sheet columns. 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 the trial balance shows debits and credits equal to $34,000. An income statement shows the organization’s financial performance for a given period of time.