The Adjusted Trial Balance
in the Accounting Cycle

The Adjusted Trial Balance lists the account balances in the General Ledger after the Adjusting Entries are made. It is used to verify the balance of debits and credits, and to review the balances of each account in preparation of Closing Entries in the next step in the Accounting Cycle.

Companies will generally prepare it on a monthly or quarterly basis, in addition to year end, in preparation of periodic Financial Statements.

An example appears below for Sunny Sunglasses Shop for January 2007, with each account affected by the Adjusting Entries highlighted.

Sunny Sunglasses Shop
Trial Balance After Adjustments
January 31, 2007

Two new accounts were created from the estimated uncollectible amount of Accounts Receivable: Allowance for Doubtful Accounts, and Bad Debt Expense. The Allowance for Doubtful Accounts reduces the Asset, Accounts Receivable, by $58. The Bad Debt Expense reduces Net Income and, consequently, Owner's Equity, in January.

Assets ($58) = Liabilities $0 + Owner's Equity ($58)

The Adjusting Entries created five other new accounts in the Trial Balance: Interest Payable, Payroll Taxes Payable, Wages Payable, Insurance Expense, and Interest Expense.

The other three accounts highlighted, Prepaid Insurance, Payroll Taxes, and Wages, had additional activity as a result of the Adjusting Entries.

Each of the balances of the debit accounts on the General Ledger, Assets and Expenses, equals the total balances of the credit accounts, Liabilities, Owners Equity, and Revenue, after the Adjusting Entries.

The Trial Balance contains all of the information that Sunny Sunglasses Shop needs to prepare Closing Entries and the Financial Statements for January.

The Adjusted Trial Balance serves two main purposes: It verifies the equality of the debits and credits after the Adjusting Entries. It provides a listing of each account balance to facilitate the period close in preparation of the Financial Statements.

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