Adjusted Trial Balance: A Simple Worked Example
An adjusted trial balance is a list of every general ledger account with a balance, showing each account’s ending debit or credit after adjusting entries are posted. It’s prepared at the end of the accounting period, confirms that total debits equal total credits, and supplies the updated balances used to prepare the financial statements.
Watch Professor Farhat: This clip (3:18 to 9:08) comes from his 10-column worksheet lesson. Follow how the adjustments change the unadjusted balances into adjusted balances.
What does an adjusted trial balance show?
It is an internal accounting schedule, not a balance sheet. It includes revenues and expenses as well as assets, liabilities, and equity accounts. Equal totals demonstrate arithmetic balance; they do not prove that every required transaction or adjustment was recorded.
The adjustment process implements accrual accounting, which separates economic activity from cash timing. See the FASB Conceptual Framework, paragraph OB17, for the conceptual basis. The numerical case below is entirely hypothetical.
How is an adjusted trial balance different from an unadjusted one?
The unadjusted trial balance lists balances before period-end adjusting entries. The adjusted trial balance lists the same accounts after those entries are posted, so it reflects revenue earned, expenses incurred, and assets used up during the period.
| Stage | What it contains | What you do |
|---|---|---|
| Unadjusted trial balance | Balances before period-end updates | Identify missing recognition and expired benefits |
| Adjusting journal entries | Balanced changes supported by facts | Journalize and post each debit and credit |
| Adjusted trial balance | All updated ending ledger balances | Total the columns and investigate differences |
The schedule follows adjustments and precedes financial-statement preparation. This lesson stops at that point. Closing entries and the post-closing trial balance are later stages with a different purpose.
How do you prepare an adjusted trial balance?
For additional help, see the unadjusted trial balance, journalizing and posting, and closing entries guides. Course lesson links on this page may require course access.
- Start with the unadjusted trial balance. List every ledger account and its balance before any period-end updates.
- Journalize the adjusting entries. Each one is a balanced entry backed by a fact, like supplies used up or wages owed but not yet paid.
- Post each adjustment to the ledger. Update both the debit account and the credit account.
- Find each account’s new ending balance. Put it in the debit or credit column. Assets, liabilities, equity, revenues, and expenses all appear.
- Total both columns. If they don’t match, find and fix the actual error. Then use the adjusted balances to prepare the financial statements.
Adjusted Trial Balance: Interactive Accounting Exercise
Use this five-question adjusted trial balance exercise to check the preparation sequence, the source of account balances, and the purpose of the schedule before working through the numerical example below. Harbor Design Studio is a separate concept-check scenario from Meadow Services.
Harbor Design Studio has just journalized and posted every adjusting entry for the month. Its accountant now pulls the ending balance of each ledger account into one list: the adjusted trial balance. The accountant checks that total debit balances equal total credit balances after all adjustments. Because the updated ledger balances supply the account balances used in financial statement preparation, this list is the primary basis for preparing financial statements. Preparing the statement of cash flows and disclosures also requires additional information.
Remember: Equal debit and credit totals confirm arithmetic balance; they do not establish that every transaction or adjustment has been recorded correctly.
Choose one answer for each question, then select Check answers. All five questions are based on the passage above.
Review the answers and explanations
- After journalizing and posting all adjusting entries. The adjusted trial balance follows both steps.
- Its ledger accounts. Harbor Design Studio prepares the adjusted trial balance from these accounts.
- Total debit balances equal total credit balances. This equality is checked after all adjustments.
- Preparing financial statements. The adjusted trial balance is the primary basis for their preparation.
- The accounts provide updated balances used in preparing financial statements. The adjusted trial balance summarizes those balances. Cash-flow preparation and disclosures require additional information.
Hypothetical case: Meadow Services
Meadow Services begins its December 31 adjustment process with the balances shown in the first two numeric columns below. Amounts are U.S. dollars. All accounts with zero unadjusted balances are shown as dashes. The starting trial balance totals $55,000 on each side. Meadow began operations on December 1, so December 31 is its first period-end. That’s why the starting balances show no Retained Earnings account and no depreciation recorded yet.
The accountant identifies seven facts: supplies remaining are $700; one month of a $2,400 twelve-month insurance policy has expired; monthly equipment depreciation is $400; $1,200 of a recorded customer advance is earned; completed but unrecorded services are $900; unpaid and unrecorded wages are $600; and the required ending allowance for doubtful accounts is $300, with a zero unadjusted allowance balance.
Assume the $900 of work is complete, so Meadow has satisfied its performance obligation (its promise to the customer) and has an unconditional right to be paid. That right is a receivable. The insurance benefit is consumed evenly. The $300 allowance is a stipulated estimate for this exercise, not a prescribed percentage or complete estimation model.
Journalize the seven adjustments
| Ref. | Debit | Credit | Amount |
|---|---|---|---|
| A | Supplies Expense | Supplies | $1,100 |
| B | Insurance Expense | Prepaid Insurance | $200 |
| C | Depreciation Expense | Accumulated Depreciation—Equipment | $400 |
| D | Unearned Service Revenue | Service Revenue | $1,200 |
| E | Accounts Receivable | Service Revenue | $900 |
| F | Wages Expense | Wages Payable | $600 |
| G | Bad Debt Expense | Allowance for Doubtful Accounts | $300 |
Adjustment A is $1,800 − $700 = $1,100 consumed. Adjustment B is $2,400 ÷ 12 = $200. The other amounts follow the stated period-end facts. Total adjustment debits and total adjustment credits each equal $4,700.
Review prepayment and customer-advance adjustments for A, B, and D, and accrued revenue and wage adjustments for E and F. Entries C and G each credit a contra-asset account, which is an account with a credit balance that reduces a related asset. The adjusting-entries overview explains both in more detail.
The complete adjusted trial balance
| Account | Unadjusted debit | Unadjusted credit | Adjusted debit | Adjusted credit |
|---|---|---|---|---|
| Cash | 14,000 | — | 14,000 | — |
| Accounts Receivable | 6,000 | — | 6,900 | — |
| Allowance for Doubtful Accounts | — | — | — | 300 |
| Supplies | 1,800 | — | 700 | — |
| Prepaid Insurance | 2,400 | — | 2,200 | — |
| Equipment | 24,000 | — | 24,000 | — |
| Accumulated Depreciation—Equipment | — | — | — | 400 |
| Accounts Payable | — | 5,000 | — | 5,000 |
| Unearned Service Revenue | — | 3,000 | — | 1,800 |
| Wages Payable | — | — | — | 600 |
| Common Stock | — | 32,000 | — | 32,000 |
| Service Revenue | — | 15,000 | — | 17,100 |
| Wages Expense | 5,200 | — | 5,800 | — |
| Rent Expense | 1,600 | — | 1,600 | — |
| Supplies Expense | — | — | 1,100 | — |
| Insurance Expense | — | — | 200 | — |
| Depreciation Expense | — | — | 400 | — |
| Bad Debt Expense | — | — | 300 | — |
| TOTAL | 55,000 | 55,000 | 57,200 | 57,200 |
Each row shows its ending balance on one side, not its total debit and credit activity. For example, Unearned Service Revenue ends at a $1,800 credit: $3,000 credit less the $1,200 debit adjustment. Wages Expense ends at a $5,800 debit: $5,200 plus $600.
The adjusted totals do not equal $55,000 plus $4,700. Some adjustments move amounts between accounts on the same side, while others increase both column totals. Recompute every ending balance before summing.
Checks beyond equal debit and credit totals
Cash stays $14,000 because none of these seven adjustments involves a cash flow. Equipment stays at its $24,000 cost, and accumulated depreciation rises from zero to $400. Equipment’s net book value is therefore $23,600.
Gross receivables are $6,900, and the $300 allowance for doubtful accounts produces net receivables of $6,600. The allowance belongs in the credit column even though it relates to an asset. FASB’s credit-loss guidance explains that real estimates use relevant information about past events, current conditions, and reasonable and supportable forecasts. Under ASC 326, many companies call these accounts the allowance for credit losses and credit loss expense. The mechanics in this example are the same.
As an additional reasonableness check, revenue is $17,100 and listed expenses total $9,400, giving $7,700 of income before any unlisted taxes or other items. This is a check on the example, not a complete set of financial statements.
What are the most common adjusted trial balance mistakes?
Do not replace the Equipment account with net book value in the trial balance; show cost and accumulated depreciation separately. Do not put the adjustment amount into the ending-balance column when an existing balance remains. Finally, do not force a difference into Cash merely to make the totals agree.
A completely omitted entry can leave both columns equal. Posting the right amount to the wrong expense account can also preserve equality. Trace unusual balances to the journal and supporting evidence, rather than treating equal totals as proof of accuracy.
Where does the 10-column worksheet fit in?
Some instructors and textbooks prepare the adjusted trial balance inside a 10-column worksheet. It’s an optional internal tool, not a required record.
The worksheet has five pairs of debit and credit columns: trial balance, adjustments, adjusted trial balance, income statement, and balance sheet. The adjusted trial balance columns hold exactly the same numbers you see in the Meadow Services table above. The video at the top of this page comes from Professor Farhat’s worksheet lesson.
Key takeaways
- An adjusted trial balance lists each account’s ending balance after adjusting entries are posted.
- It comes after adjusting entries and before the financial statements.
- It includes revenue and expense accounts, which stay open until closing entries.
- Equal totals prove the columns balance, not that every entry is correct or complete.
- Contra-asset accounts, like accumulated depreciation and the allowance for doubtful accounts, go in the credit column.
- In the Meadow example, seven adjustments raise both totals from $55,000 to $57,200.
Practice questions with explained answers
1. Why is adjusted Service Revenue $17,100?
Answer: The original $15,000 credit increases by $1,200 earned from an advance and $900 of accrued revenue: $15,000 + $1,200 + $900 = $17,100.
2. If adjustment F is omitted, will the trial balance still balance?
Answer: Yes. Both the $600 debit to Wages Expense and the $600 credit to Wages Payable would be missing. Liabilities and expenses would be understated, and income overstated, by $600.
3. What is the adjusted debit balance in Prepaid Insurance?
Answer: $2,200. The original $2,400 asset is reduced by $200 of expired coverage. The $200 adjustment is not the ending asset balance.
Frequently asked questions
Does an adjusted trial balance include revenue and expense accounts?
Answer: Yes. Those balances remain until the later closing process and supply information for the income statement.
Is the adjusted trial balance a financial statement?
Answer: No. It is an internal schedule used as the basis for preparing financial statements.
What should I do when the totals differ?
Answer: Recheck arithmetic, debit and credit placement, omitted posting sides, and copied amounts. Correct the actual error instead of adding an unsupported balancing figure.
What is the difference between an unadjusted and an adjusted trial balance?
Answer: The unadjusted version shows balances before period-end adjusting entries. The adjusted version shows them after those entries are posted. In the Meadow example, the totals rise from $55,000 to $57,200.
Which financial statements are prepared from the adjusted trial balance?
Answer: The income statement, the statement of retained earnings (or stockholders’ equity), and the balance sheet. The statement of cash flows needs additional information about cash receipts and payments, so it isn’t prepared from the adjusted trial balance alone.
What comes after the adjusted trial balance?
Answer: Prepare the financial statements first. Then record closing entries to close temporary accounts and update Retained Earnings. Finally, prepare a post-closing trial balance containing only permanent accounts: assets, liabilities, and equity.
Do accounts with a zero balance appear on an adjusted trial balance?
Answer: Often they’re left out, since most trial balances list only accounts with a balance. This page shows a few zero rows in the unadjusted columns so you can see how each adjustment creates a new balance.
Responses