After adjusting entries are posted to the ledger and adjusting entries are recorded, an adjusted trial balance is compiled.
This is the second trial balance prepared during the accounting cycle. Its purpose is to verify the equality of debits and credits following the entry of adjusting entries into the company’s books.
The adjusted trial balance is a crucial financial statement that aids in ensuring the veracity of financial records and the dependability of financial statements. It is used to produce financial statements used by investors, creditors, and other stakeholders to evaluate the company’s financial performance.
Steps Involved in Preparing Adjusted Trial Balance
The preparation of an adjusted trial balance requires multiple stages. First, the unadjusted trial balance is compiled by cataloguing all accounts and their balances as of a particular date. Then, modifying entries are recorded to reflect updated account balances. Journal entries are used to reflect the account to be adjusted, the amount of the adjustment, and the account used to register the adjustment.
After adjusting entries have been made, a new trial balance, the adjusted trial balance, is prepared. This statement contains the current balances of all accounts, including those that have been modified. The trial balance is used to create the financial statements, including the balance sheet, income statement, and cash flow statement.