The adjusted trial balance

An adjusted trial balance is an unadjusted trial balance to which adjusting entries have been added. 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.

Once all adjustments have been made, the adjusted trial balance is essentially a summary-balance listing of all the accounts in the general ledger - it does not show any detail transactions that comprise the ending balances in any accounts. The adjusting entries are shown in a separate column, but in aggregate for each account; thus, it may be difficult to discern which specific journal entries impact each account.

The adjusted trial balance is not part of the financial statements - rather, it is an internal report that has two purposes:

  • To verify that the total of the debit balances in all accounts equals the total of all credit balances in all accounts; and
  • To be used to construct financial statements (specifically, the income statement and balance sheet; construction of the statement of cash flows requires additional information).

The second application of the adjusted trial balance has fallen into disuse, since computerized accounting systems automatically construct financial statements. However, it is the source document if you are manually compiling financial statements. In the latter case, the adjusted trial balance is critically important - financial statements cannot be constructed without it.

Example of an Adjusted Trial Balance

The following report shows an adjusted trial balance, where the initial, unadjusted balance for all accounts is located in the second column from the left, various adjusting entries are noted in the third column from the left, and the combined, net balance in each account is stated in the far right column.

ABC International
Trial Balance
July 31, 20XX

  Unadjusted
Trial Balance
Adjusting
Entries
Adjusted
Trial Balance
Cash $60,000   $60,000
Accounts receivable 180,000 50,000 230,000
Inventory 300,000   300,000
Fixed assets (net) 210,000   210,000
Accounts payable (90,000)   (90,000)
Accrued liabilities (50,000) $(25,000) (75,000)
Notes payable (420,000)   (420,000)
Equity (350,000)   (350,000)
Revenue (400,000) (50,000) (450,000)
Cost of goods sold 290,000   290,000
Salaries 200,000 25,000 225,000
Payroll taxes 20,000   20,000
Rent 35,000   35,000<
Other expenses 15,000   15,000
Total $0 $0 $0

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.