PREPARING of AN ADJUSTED TRIAL

BALANCE
 ADJUSTED TRIAL BALANCE
• A trial balance is the list of balances of ledger accounts
posted in compliance with the double entry accounting
concept. An adjusted trial balance is prepared after
making all adjusting entries in the ledger accounts.
Balances posted in the adjusted trial balance are up to
date and used to prepare the final financial statements.
Preparation of the adjusted trial balance forms part of
the accounting cycle. It involves nine steps.
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 Steps in the Accounting Cycle
Identify the Transaction
Identify the event as a transaction
and generate the source document.

Analyze the Transaction

Determine the transaction amount, which accounts are
affected, and in which direction.

Journal Entries
The transaction is recorded in
the journal as a debit and a credit.

Post to Ledger
The journal entries are transferred
to the appropriate T-accounts in the ledger.

Trial Balance
A trial balance is calculated to verify that the sum of the
debits is equal to the sum of the credits.
STEPS IN THE ACCOUNTING CYCLE

Trial Balance
A trial balance is calculated to verify that the sum of the
debits is equal to the sum of the credits.

Adjusting Entries
Adjusting entries are made for accrued and
deferred items. The entries are journalized and
posted to the T-accounts in the ledger.

Adjusted Trial Balance

A new trial balance is calculated
after making the adjusting entries.
 The Adjusted Trial Balance
will also show the balance o all the
accounts irrespective of whether they
were involved in the adjustment. The
accounts involved in the adjustment will
show the updated or adjusted balance
 The purpose of preparing the
Adjusted Trial Balance
is to show the effect of all financial events
that had occurred in the accounting
period. The Adjusted Trial Balance is to
verify that the total debit and total credit
are equal for all the accounts in the ledger
after the adjustments
PREPARING of AN ADJUSTED TRIAL BALANCE
Identify Transactions and Prepare Source Documents

Classify and Journalize Transactions

Prepare Ledger Accounts

Prepare the Trial Balance

Correct Discrepancies and Prepare Adjusting Entries

Post Adjusting Entries and Prepare Adjusted Trial Balance

Post Adjusting Entries and Prepare Adjusted Trial Balance

 THE WORKSHEET

Alex Bell Consultant Pharmacist

Worksheet
Year Ended October 31, 2006
Unadjusted Trial Adjustments
Account titles Balance
Debit Credit Debit Credit
Cash 6500
Accounts Receivable 4200
Office supplies 1550
Prepaid Insurance 1800
Prepaid Rent 240
Furniture and Fixtures 3300
Accumulated 800
Depreciation
Notes Payable 2500
Accounts Payable 3700
Alex Bell, Capital 5905
Alex Bell, Withdrawals 6000
Consulting Revenue 20300
Rent Expense 2640
Salary Expense 6250
Telephone Expense 725
33205 33205
 ADJUSTMENTS

• Assume that data are available to make the necessary adjustments for
Alex Bell as of October 31, 2011, the end of the fiscal year:
• (1) unused supplies amount to $1200;
• (2) there is the three-year prepaid insurance policy purchased on
November 1, 2011;
• (3) the balance of prepaid rent represents rent for October, 2011 paid
on October 1, 2011;
• (4) depreciation on furniture and fixtures is $400;
• (5) salary expense of $300 was incurred, but not yet paid by October
31, 2011.
 Year Ended October 31, 2006

Unadjusted Trial Balance Adjustments

Account titles Debit Credit Debit Credit
Cash 6500
Accounts Receivable 4200
Office supplies 1550 350
Prepaid Insurance 1800 600
Prepaid Rent 240 240
Furniture and Fixtures 3300
Accumulated Depreciation 800 400
Notes Payable 2500
Salaries Payable 300
Accounts Payable 3700
Alex Bell, Capital 5905
Alex Bell, Withdrawals 6000
Consulting Revenue 20300
Supplies Expenses 350
Rent Expense 2640 240
Salary Expense 6250 300
Insurance Expense 600
Telephone Expense 725
Depreciation Expense 400
33205 33205 1890 1890
 Adjusted Trial Balance
Unadjusted Trial Balance Adjustments Adjusted Trial Balance
Account titles
Debit Credit Debit Credit Debit Credit
Cash 6500 6500
Accounts 4200 4200
Receivable
Office supplies 1550 350 1200

Prepaid Insurance 1800 600 1200

Prepaid Rent 240 240 -

Furniture and 3300 3300
Fixtures
Accumulated 800 400 1200
Depreciation
Notes Payable 2500 2500
Salaries Payable 300 300
Accounts Payable 3700 3700
Alex Bell, Capital 5905 5905
Alex Bell, 6000 6000
Withdrawals
Cons ulting 20300 20300
Revenue
Supplies 350 350
Expenses
Rent Expense 2640 240 2880
Salary Expense 6250 300 6550
Insurance 600 600
Expense
Telephone 725 725
Expense
Depreciation 400 400
Expense
33205 33205 1890 1890 33905 33905
 Accounts

real or permanent nominal or temporary

They have a functional life of

Their measurement function
one accounting period only in
spans all the accounting
order to permit the periodic
periods in the life of a firm.
measurement of net income.
The closing entry process consists of a
series of four journal entries:
• (1) an entry to close the revenue accounts and transfer the balances to an income
summary account;

• (2) an entry to close the expense accounts and transfer the balances to the income
summary account;

• (3) an entry to close the income summary account and transfer the balance, which
represents net income or net loss, to the owner capital account;

• (4) an entry to close the owner withdrawals account and transfer the balance to the
owner capital account.
 The closing entry process

To close out the account, an offsetting debit journal entry of $20,300 is made
to consulting revenue and a credit entry of the same amount is made to the
income summary account.
Oct 31 Consulting Revenue 20300
Income Summary 20300
To close the revenue
account
 The sum of all the direct entries is debited to the
income summary account:

Oct 31 Income Summary 11530

Rent Expense 2880

Salary Expense 6550

Telephone Expense 725

Supplies Expense 350

Insurance Expense 600

Depreciation Expense 400

Interest Expense 25

To close the expense account

 The closing entry process
(closing income summary account)

Oct 31 Income Summary 8770

Alex Bell, Capital 8770

To close income summary

and transfer net income
The final step is to close the owner withdrawals
account.

Oct 31 Alex Bell, Capital 6000

Alex Bell, Withdrawals 6000

To close withdrawals account

 POST-CLOSING TRIAL BALANCE
Alex Bell, Consultant Pharmacist
Post-Closing Trial Balance October 31, 19X7

Debit Credit
Cash $ 6,500
Accounts Receivable 4,200
Office Supplies 1,200
Prepaid Insurance 1,200
Furniture and Fixtures 3,300
Accumulated Depreciation $ 1,200
Notes Payable 2,500
Accounts Payable 3,700
Accrued Salaries Payable 300
Accrued Interest Payable 25
Alex Bell, Capital 8,675
$16,400 $16,400