Adjusted Trial balance
Definition
Adjusted trial balance is a list that shows all general ledger accounts and their balances after all adjusting entries have been made. Similar to the unadjusted trial balance, the total of debit balances must equal the total of credit balances in the adjusted trial balance.
Adjusted trial balance is usually prepared at the end of the reporting period (e.g. at the end of the month or year) after all the journal entries, including both original journal entries and adjusting entries, have been made.
The main purpose of the adjusted trial balance is to prove that the total of debit balances of all accounts still equal to the total of credit balances after making all required adjusting entries. Likewise, the adjusted trial balance is the primary basis for preparing financial statements.
Adjusted trial balance vs Unadjusted trial balance
Unlike adjusted trial balance, an unadjusted trial balance shows only accounts and their balances that the company has before taking to account any adjusting entry. After making adjusting entries, more accounts may show up and the total balances on debit and credit side will usually change.
Likewise, while the adjusted trial balance is used as the basis for the preparation of financial statements, the unadjusted trial balance usually cannot be used for such purpose. This is due to the total balances in the unadjusted trial balance are usually understated or overstated.
In this case, while the adjusted trial balance is for the basis of preparing financial statements, the unadjusted trial balance is for the adjusting entries which are required step for changing unadjusted trial balance to the adjusted trial balance. This is due to the company usually needs to make sure that the total balances on the debit side equal to those on the credit side before they make any necessary adjustments.
There is also a similarity between the adjusted and unadjusted trial balance in which the total of debit balances must equal the total of credit balances in both types of trial balance.
Below is the summary of the comparison between adjusted trial balance and unadjusted trial balance:
| Adjusted trial balance vs Unadjusted trial balance | |
|---|---|
| Adjusted trial balance | Unadjusted trial balance |
| Show all company’s accounts and their balance after all adjusting entries have been made | Show the company’s accounts and their balances before any adjusting entry is made |
| The total balances shown are the final corrected balances | The total balances shown are usually understated or overstated |
| Is used as the basis for the preparation of financial statements | Is used to make sure that total debit equal total credit so that the company can make necessary adjustments afterward |
| Total balances on the debit side must equal total balances on the credit side | The same in this point as total debits must equal to total credits |
It is useful to note that it is not a 100% guarantee that all the journal entries including adjusting entries are correctly posted and no omission is made when debits and credits are balanced in the adjusted trial balance. This is due to there are some errors that are not revealed on the trial balance.