Once all of the adjusting entries have been posted to the general ledger, we are ready to start working on preparing the adjusted trial balance. Preparing an adjusted trial balance is the sixth step in the accounting cycle. An adjusted trial balance is a list of all accounts in the general ledger, including adjusting entries, which have nonzero balances. This trial balance is an important step in the accounting process because it helps identify any computational errors throughout the first five steps in the cycle. This is posted to the Unearned Revenue T-account on the debit side (left side). You will notice there is already a credit balance in this account from the initial customer payment.
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Prepare Financial Statements Using the Adjusted Trial Balance
Remember that adding debits and credits is like adding
positive and negative numbers. This means the $600 debit is
subtracted from the $4,000 credit to get a credit balance of $3,400
that is translated to the adjusted trial balance column. If you look in the balance sheet adjusted trial balance example columns, we do have the new, up-to-date retained earnings, but it is spread out through two numbers. If you combine these two individual numbers ($4,665 – $100), you will have your updated retained earnings balance of $4,565, as seen on the statement of retained earnings.
- A trial balance is an important step in the accounting process, because it helps identify any computational errors throughout the first three steps in the cycle.
- Situations such as these are why businesses need to make adjusting entries.
- The debits would still equal the credits, but the individual accounts are incorrect.
- As you can see by the adjusted trial balance example above, some of the account totals have now been updated.
- This is posted to the Accounts Receivable T-account on the debit side (left side).
- Multi-period and departmental trial balance reports are available as well.
The preparation of the adjusted trial balance is the sixth step of the accounting cycle. This trial balance is prepared after taking into account all the adjusting entries prepared in the 4th step of the accounting cycle. Net income information is taken from the income statement, and dividends information is taken from the adjusted trial balance.