The difference between an unadjusted and adjusted trial balance
/What is an Unadjusted Trial Balance?
The unadjusted trial balance is the listing of general ledger account balances at the end of a reporting period, before any adjusting entries are made to the balances to create financial statements. The unadjusted trial balance is used as the starting point for analyzing account balances and making adjusting entries. This report is a standard one that can be issued by many accounting software packages.
What is an Adjusted Trial Balance?
An adjusted trial balance is a listing of the ending balances in all accounts after adjusting entries have been prepared. The intent of adding these entries is to correct errors in the initial version of the trial balance and to bring the entity's financial statements into compliance with an accounting framework, such as Generally Accepted Accounting Principles or International Financial Reporting Standards.
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Comparing an Unadjusted and Adjusted Trial Balance
Given these definitions, the difference between the two types of trial balance are as follows:
Purpose. An unadjusted trial balance is intended to ensure that total debits and credits are equal before adjustments, while an adjusted trial balance includes adjustments for accruals, deferrals, and other corrections.
Inclusion of adjusting entries. An unadjusted trial balance does not include any adjusting entries, while adjusted trial balance includes adjusting entries.
Accuracy of financial statements. An unadjusted trial balance does not result in completely accurate financial statements, while an adjusted trial balance provides more accurate ending balances for the preparation of financial statements.
Example of Adjusting Entries
Examples of adjusting entries include the following:
To record depreciation and amortization for the period
To record an allowance for doubtful accounts
To record a reserve for obsolete inventory
To record a reserve for product returns
To record the impairment of an asset
To record an asset retirement obligation
To record a warranty reserve
To record any accrued revenue
To record previously billed but unearned revenue as a liability
To record any accrued expenses
To record any previously paid but unused expenditures as prepaid expenses
To adjust cash balances for any reconciling items noted in the bank reconciliation