Adjusted trial balance is the fifth step of accounting cycle that is prepared after the preparation and posting of adjusting entries to the relevant ledger accounts. Adjusted trial balance provides enough information for the preparation of a number of financial statements such as income statement, balance sheet and statement of changes in equity.
Format and methods of preparing adjusted trial balance
The format of adjusted trial balance is similar to that of unadjusted trial balance. It has three columns. The first column is used to write account names or titles, the second column is used to write debit amounts and the third column is used to write credit amounts. Adjusted trial balance is prepared using one of the two methods explained below:
The first method is similar to the preparation of an unadjusted trial balance. The ledger accounts are adjusted for the end of period adjusting entries and the account balances are listed to prepare adjusted trial balance. This method is time consuming but is considered more systematic and is usually used by large companies where a lot of adjusting entries are prepared at the end of each accounting period.
The second method is simple and fast but less systematic and is usually used by small companies where only a few adjusting entries are found at the end of accounting period. In this method, the adjusting entries are directly added to the unadjusted trial balance to convert it to adjusted trial balance.
Both the methods are in practice and produce the same result. To simplify the procedure, we shall use the second method in our example.
Marketing Consulting Service Inc. adjusts its accounts at the end of each month. The unadjusted trial balance on December 31, 2015 and adjusting entries for the month of December are given below. The adjusting entries for the first 11 months of the year 2015 have already been made.
Required: Prepare an adjusted trial balance of Marketing Consulting Service Inc. on December 31, 2015.
The accounts that have been affected as a result of making adjusting entries for the month of December are shown in red color in the adjusted trial balance. It is just for the purpose of explanation and you don’t need to change the color in your home work assignments or examination questions.