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What is adjusted trial balance?
In this trial balance, adjustments are made to initial balance to all the required accounts. Adjustments are made to an initial trial balance to bring the financial statements into compliance with GAAP (Generally Accepted Accounting principles) or IFRS (International Financial Reporting Standards). The adjusted trial balance is an internal report.
Main purpose
The main purposes of the adjusted trial balance are as follows −
- Verification of total debt balances to credit balances of all accounts.
- To construct an income statement, statement of cash flow and balance sheet.
- Monitors the company's performance.
- It makes sure the entries are made correctly.
- It is used as an internal document only and not as a financial statement.
Preparation
Follow the steps given below to prepare the adjusted trial balance −
Step 1 − Write
- Company name
- Name of trial balance
- Reporting date
Step 2 − Prepare three columns
- First column is for account names.
- Second column is for debits.
- Third column is for credits.
Step 3 − Accounts balanced are recorded by using their account numbers in a chart of accounts.
Step 4 − Total in the debit column should be equal to the total in the credit column.
Step 5 − To comply with accrual rules of accounting, entries are adjusted accordingly (mainly, income and expenses are matched to their respective accounting periods).
Step 6 − Accrued revenues, depreciation, deferred revenues, accrued expenses and deferred expenses are types of adjusting entries
Types
- Adjusted entries are posted in the ledger account then, ledger balances are corrected with new entries and posted them in trial balance.
- Adjusting required entries in unadjusted trial balance.
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