An adjusted trial balance is prepared after adjusting entries are made and posted to the ledger. In this lesson, we will discuss what an adjusted trial balance is and illustrate how it works.
To illustrate how it works, here is a sample unadjusted trial balance:
| Gray Electronic Repair Services | ||||
| Unadjusted Trial Balance | ||||
| December 31, 2021 | ||||
| Account Title | Debit | Credit | ||
| Cash | $ 7,480.00 | |||
| Accounts Receivable | 3,400.00 | |||
| Service Supplies | 1,500.00 | |||
| Furniture and Fixtures | 3,000.00 | |||
| Service Equipment | 16,000.00 | |||
| Accounts Payable | $ 9,000.00 | |||
| Loans Payable | 12,000.00 | |||
| Mr. Gray, Capital | 13,200.00 | |||
| Mr. Gray, Drawing | 7,000.00 | |||
| Service Revenue | 9,550.00 | |||
| Rent Expense | 1,500.00 | |||
| Salaries Expense | 3,500.00 | |||
| Taxes and Licenses | 370.00 | |||
| Totals | $ 43,750.00 | $ 43,750.00 | ||
At the end of the period, the following adjusting entries were made:
| Dec | 31 | Accounts Receivable | 300.00 | |
|---|---|---|---|---|
| Service Revenue | 300.00 | |||
| 31 | Utilities Expense | 1,800.00 | ||
| Utilities Payable | 1,800.00 | |||
| 31 | Service Supplies Expense | 900.00 | ||
| Service Supplies | 900.00 | |||
| 31 | Depreciation Expense | 720.00 | ||
| Accumulated Depreciation | 720.00 | |||
After posting the above entries, the values of some of the items in the unadjusted trial balance will change. Take the first adjusting entry. Accounts Receivable is debited hence is increased by $300. Service Revenue is credited for $300.
The balance of Accounts Receivable is increased to $3,700, i.e. $3,400 unadjusted balance plus $300 adjustment. Service Revenue will now be $9,850 from the unadjusted balance of $9,550.
Next entry. Utilities Expense and Utilities Payable did not have any balance in the unadjusted trial balance. After posting the above entries, they will now appear in the adjusted trial balance.
Third. Service Supplies Expense is debited for $900. Service Supplies is credited for $900. The Service Supplies account had a debit balance of $1,500. After incorporating the $900 credit adjustment, the balance will now be $600 (debit).
And fourth. There were no Depreciation Expense and Accumulated Depreciation in the unadjusted trial balance. Because of the adjusting entry, they will now have a balance of $720 in the adjusted trial balance.
After incorporating the adjustments above, the adjusted trial balance would look like this.
Just like in the unadjusted trial balance, total debits and total credits should be equal.
| Gray Electronic Repair Services | ||||
| Adjusted Trial Balance | ||||
| December 31, 2021 | ||||
| Account Title | Debit | Credit | ||
| Cash | $ 7,480.00 | |||
| Accounts Receivable | 3,700.00 | |||
| Service Supplies | 600.00 | |||
| Furniture and Fixtures | 3,000.00 | |||
| Service Equipment | 16,000.00 | |||
| Accumulated Depreciation | $ 720.00 | |||
| Accounts Payable | 9,000.00 | |||
| Utilities Payable | 1,800.00 | |||
| Loans Payable | 12,000.00 | |||
| Mr. Gray, Capital | 13,200.00 | |||
| Mr. Gray, Drawing | 7,000.00 | |||
| Service Revenue | 9,850.00 | |||
| Rent Expense | 1,500.00 | |||
| Salaries Expense | 3,500.00 | |||
| Taxes and Licenses | 370.00 | |||
| Utilities Expense | 1,800.00 | |||
| Service Supplies Expense | 900.00 | |||
| Depreciation Expense | 720.00 | |||
| Totals | $ 46,570.00 | $ 46,570.00 | ||
Adjusting entries are prepared at the end of the accounting period for: accrual of income, accrual of expenses, deferrals, prepayments, depreciation, and allowances.
After adjusting entries are made, an adjusted trial balance can be prepared.
This is the second trial balance prepared in the accounting cycle. Its purpose is to test the equality between debits and credits after adjusting entries are made, i.e., after account balances have been updated.
