Testing a Business’s Adjusted Trial Balance
When you make adjusting entries to your accounting books, you’ll need to prepare another trial balance, the adjusted trial balance, to ensure that your adjustments are correct and ready to be posted to the General Ledger.
You track all the adjusting entries on a worksheet. You only need to do this worksheet if you’re doing your books manually. It’s not necessary if you’re using a computerized accounting system.
The key difference in the worksheet for the Adjusted Trial Balance is that four additional columns must be added to the worksheet for a total of 11 columns. These 11 columns include the following information:
Column 1: Account titles.
Columns 2 and 3: Unadjusted Trial Balance. The trial balance before the adjustments are made with Column 2 for debits and Column 3 for credits.
Columns 4 and 5: Adjustments. All adjustments to the trial balance are listed in Column 4 for debits and Column 5 for credits.
Columns 6 and 7: Adjusted Trial Balance. A new trial balance is calculated that includes all the adjustments. Be sure that the credits equal the debits when you total that new trial balance. If they don’t, find any errors before adding entries to the balance sheet and income statement columns.
Columns 8 and 9: Balance sheet. Column 8 includes all the balance sheet accounts that have a debit balance, and Column 9 includes all the balance sheet accounts with a credit balance.
Columns 10 and 11: Income statement. Column 10 includes all the income statement accounts with a debit balance, and Column 11 includes all the income statement accounts with a credit balance.
When you’re confident that all the accounts are in balance, post your adjustments to the General Ledger so that all the balances in the General Ledger include the adjusting entries. With the adjustments, the General Ledger will match the financial statements you prepare.
Accounting Glossary
accounting equation
The equation Assets = Liabilities + Equity, which demonstrates the two-sided nature of accounting and is useful for explaining the concept of double-entry accounting (or double-entry bookkeeping).
Accounting Glossary
accounting period
The time period for which financial information is being tracked in a business, such as monthly, quarterly, or annually.
Accounting Glossary
accounts receivable
An account that records the amounts that customers owe to a business.
Accounting Glossary
adjusting entry
A correction made to a bookkeeping account that adjusts for accounting errors or other necessary changes at the end of the accounting period.
Accounting Glossary
cash flows
Used to describe the source or sources of cash or how cash is used.
Accounting Glossary
Chart of Accounts
A list of all the accounts used by a business, including what types of transactions go into each account.
Accounting Glossary
debit
An accounting entry that increases an asset or expense account, and decreases a liability or income account.
Accounting Glossary
dividends
A portion of a company’s profits paid by share of common stock on a quarterly or annual basis.
Accounting Glossary
FASB
Financial Accounting Standards Board. FASB is the highest-ranking authority in the private (non-government) sector of the U.S. for making pronouncements on GAAP and for keeping accounting standards up-to-date.
Accounting Glossary
Federal Unemployment Tax
In the U.S., the fund that used to be known simply as Unemployment. Employers contribute to the fund, and states also collect taxes to fill their unemployment fund reserves. (The acronym FUTA means Federal Unemployment Tax Act.)
Accounting Glossary
fidelity bonds
A type of insurance — typically carried by employers for their employees — that helps guard against theft and reduce the risk of loss.
Accounting Glossary
FIFO
First-in, first-out. A method for costs of goods sold in which a business charges out product costs to cost of goods sold expense in the chronological order in which the goods were acquired.
Accounting Glossary
fungible
Describes a product that is interchangeable and virtually indistinguishable from another product.
Accounting Glossary
General Ledger
A summary of all of a business’s accounts and transactions.
Accounting Glossary
IASB
International Accounting Standards Board. The IASB (based in London) is the main authoritative accounting standards setter outside the U.S.
Accounting Glossary
Journals
The location in which bookkeepers keep records (in chronological order) of daily company transactions.
Accounting Glossary
LIFO
Last-in, first-out. A method for costs of goods sold that selects the last item you purchased first, and then works backward until you have the total cost for the total number of units sold during the period.
Accounting Glossary
LLP
Limited liability partnership. A legal structure that state laws offer to qualified professionals in which all the partners have limited liability.
Accounting Glossary
PC
Professional corporation. A legal structure that state laws offer to qualified professionals who otherwise would have to operate as an unlimited partnership liability.
Accounting Glossary
petty cash
A cash account that businesses keep on hand for unexpected expenses.
Accounting Glossary
revenue
Monies that are collected in the process of selling a company’s goods and services.
Accounting Glossary
salvage value
The amount that an asset is worth after it has been fully depreciated.
Accounting Glossary
statement of cash flows
A financial statement that summarizes a business’s cash inflows and outflows during an accounting period.
Accounting Glossary
transactions
Economic exchanges between a business or other entity and the parties with which the entity interacts and makes deals.
Accounting Glossary
worker’s compensation insurance
A type of insurance carried by employers that covers its employees in case they are injured on the job.
