Preparing an Adjusted Trial Balance

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The freely available resources this lesson will direct you to.

Welcome to the final lesson of our module on period-end adjustments. Over the past few lessons, you've learned how to make crucial adjustments for accruals, prepayments, depreciation, bad debts, and items from the bank reconciliation and petty cash fund. Each of these entries fine-tunes a specific part of the company's accounts to reflect economic reality.

Now, it's time to bring everything together. This lesson fulfills the final learning outcome for this module: to prepare a complete adjusted trial balance after posting all adjusting entries. The adjusted trial balance is the master checklist we create after all adjustments are made. It confirms that our books are balanced and serves as the definitive source for preparing the primary financial statements, which we will tackle in the next module.

1. What is an Adjusted Trial Balance and Why Does It Matter?

Before we dive into the "how," let's solidify the "what" and "why." At the end of a period, after all regular transactions are recorded, we prepare an unadjusted trial balance. As you've learned, this version is incomplete because it doesn't yet reflect transactions that have occurred but haven't been recorded, like the use of supplies or the earning of accrued interest.

The adjusted trial balance (ATB) is a list of all general ledger accounts and their balances after the adjusting entries have been posted. Its primary purpose is to prove that the total debits still equal the total credits after all adjustments, ensuring the integrity of the accounting equation before we move on.

For a clear breakdown of the difference between an unadjusted and an adjusted trial balance, please read the following article.

Adjusted Trial Balance: Definition and Examples

This article from BILL clearly defines the adjusted trial balance, its purpose, and its critical role in the accounting cycle. It includes a helpful table comparing it to the unadjusted trial balance.

Read the sections 'What is an adjusted trial balance?' and 'Differences between unadjusted and adjusted trial balances'. Focus on the purpose of the ATB and the comparison table, which clearly outlines the differences in timing, purpose, and accuracy.

As the article highlights, the adjusted trial balance is not just a procedural step; it is the foundation for accurate financial reporting. Investors, banks, and management rely on financial statements derived from these final, corrected balances.

2. The Process: From Unadjusted to Adjusted

The journey from an unadjusted trial balance to a complete adjusted trial balance follows a logical sequence. It's the practical application of everything you've learned in this module.

The steps are as follows:

Start with the Unadjusted Trial Balance: This is your initial list of account balances.
Prepare Adjusting Journal Entries: Based on period-end information, you draft the entries for accruals, deferrals, depreciation, etc.
Post the Adjusting Entries: The debits and credits from your adjusting entries are used to update the balances of the affected accounts. A great way to visualize this is by using T-accounts.
Prepare the Adjusted Trial Balance: A new trial balance is created, listing all accounts (including any new ones created by the adjustments) with their updated balances.

The following video demonstrates this process perfectly, showing how T-accounts are used to track the changes from the initial balances to the final, adjusted balances.

Prepare an Adjusted Trial Balance Statement (Financial Accounting Tutorial #24)

This tutorial by Notepirate provides an excellent visual walkthrough of how adjusting entries change the account balances. It clearly shows the use of T-accounts to arrive at the final numbers for the adjusted trial balance.

Watch from 01:01 to 08:27. First, observe the initial unadjusted trial balance and the list of adjusting entries. Pay close attention to how the presenter uses T-accounts to post these adjustments, either changing an existing balance or creating a new one. Finally, see how the final balances from the T-accounts are compiled into the new adjusted trial balance.

3. A Comprehensive Worked Example

Now that you understand the mechanics, let's walk through a more comprehensive example that incorporates several types of adjustments you've encountered. This will help solidify the end-to-end process.

The video below starts with a pre-adjustment trial balance and a list of "additional information"—the triggers for your adjusting entries. It systematically works through each adjustment, calculates the new balance, and builds the final post-adjustment trial balance.

Post-Adjustment Trial Balance Prepared (Full Example)

This detailed example from Counttuts will guide you through preparing a post-adjustment trial balance from start to finish, covering several common adjustments.

Watch the video from the beginning to 16:24. As you watch, follow the presenter's method: Note how he first lists all the accounts from the unadjusted trial balance. For each piece of 'additional information' (inventory, depreciation, deferred revenue, prepaid rent, accrued expense), observe how he identifies the affected accounts and calculates their new balances. Notice how accounts not affected by adjustments are carried over with their original balances. Finally, see him total the columns to confirm they balance.

4. Application in a Moroccan SME Context

Let's apply this process to a simple Moroccan SME, "Fès Artisanat SARL."

First, here is their unadjusted trial balance as of December 31, 20X1:

N° Compte	Intitulé du Compte	Débit (DH)	Crédit (DH)
3122	Fournitures de bureau (Stock)	6,000
5141	Banques	80,000
4411	Fournisseurs		25,000
1111	Capital social		120,000
7111	Ventes de marchandises		90,000
6171	Salaires et appointements	54,000
2351	Matériel de bureau	95,000
	TOTAL	235,000	235,000

Now, here is the additional information for adjustments:

Depreciation: Annual depreciation on office equipment is calculated at 10,000 DH.
Accrued Salaries: Salaries for the last week of December, amounting to 4,000 DH, have been earned by employees but will be paid in January.
Supplies Used: A physical count reveals that only 2,000 DH of office supplies are left on hand.

Step 1: Prepare Adjusting Journal Entries

Depreciation:
- Dr. 6193 - Dotations d'exploitation aux amort. des immobilisations corporelles: 10,000
- Cr. 2835 - Amortissements du matériel de bureau: 10,000
Accrued Salaries:
- Dr. 6171 - Salaires et appointements: 4,000
- Cr. 4432 - Rémunérations dues au personnel: 4,000
Supplies Used: (6,000 beginning balance - 2,000 ending balance = 4,000 used)
- Dr. 6122 - Achats consommés de matières et fournitures: 4,000
- Cr. 3122 - Fournitures de bureau (Stock): 4,000

Step 2: Update Account Balances

Let's calculate the new balances:

Fournitures de bureau (Stock) (3122): 6,000 (Dr) - 4,000 (Cr) = 2,000 (Dr)
Salaires et appointements (6171): 54,000 (Dr) + 4,000 (Dr) = 58,000 (Dr)
Dotations aux Amortissements (6193): 0 + 10,000 (Dr) = 10,000 (Dr) (New account)
Amortissements du matériel de bureau (2835): 0 + 10,000 (Cr) = 10,000 (Cr) (New account)
Rémunérations dues (4432): 0 + 4,000 (Cr) = 4,000 (Cr) (New account)
Achats consommés de matières et fournitures (6122): 0 + 4,000 (Dr) = 4,000 (Dr) (New account)
All other accounts remain unchanged.

Step 3: Prepare the Adjusted Trial Balance

Now we compile the final list. The resulting document is known in French as the Balance après inventaire.

Partial Adjusted Trial Balance Example — This image shows an example of how final adjusted account balances, such as for equipment and its accumulated depreciation, are presented in a professional format.

Here is the complete Adjusted Trial Balance for Fès Artisanat SARL:

N° Compte	Intitulé du Compte	Débit (DH)	Crédit (DH)
3122	Fournitures de bureau (Stock)	2,000
5141	Banques	80,000
4411	Fournisseurs		25,000
1111	Capital social		120,000
7111	Ventes de marchandises		90,000
6171	Salaires et appointements	58,000
2351	Matériel de bureau	95,000
6122	Achats consommés de matières et fournitures	4,000
6193	Dotations d'exploitation aux amortissements...	10,000
2835	Amortissements du matériel de bureau		10,000
4432	Rémunérations dues au personnel		4,000
	TOTAL	249,000	249,000

As you can see, new accounts have been added, existing balances have changed, and most importantly, the total debits equal the total credits. The books are balanced and correct.

Test your understanding!

Given the following Unadjusted Trial Balance for "Casa Tech SARL":

Cash: 50,000 (Dr)
Prepaid Rent: 12,000 (Dr)
Accounts Payable: 10,000 (Cr)
Service Revenue: 52,000 (Cr)

And the following information:

One month of the prepaid rent has expired. The 12,000 DH was for 3 months' rent.
Services of 5,000 DH were performed for a client, but have not yet been billed or recorded.

What are the final adjusted balances for Prepaid Rent, Rent Expense, Accounts Receivable, and Service Revenue?

Show answer

Rent Adjustment: One month's rent is 12,000 / 3 = 4,000 DH. This amount is now an expense.
- Rent Expense (new account) will have a balance of 4,000 DH (Dr).
- Prepaid Rent will be reduced by 4,000 DH. New balance = 12,000 - 4,000 = 8,000 DH (Dr).
Accrued Revenue Adjustment: The company has earned 5,000 DH.
- Accounts Receivable (new account) will be created with a balance of 5,000 DH (Dr).
- Service Revenue will increase. New balance = 52,000 + 5,000 = 57,000 DH (Cr).

Conclusion

Congratulations on completing this foundational module! You have successfully navigated the entire period-end adjustment process, culminating in the preparation of the adjusted trial balance. This is a significant milestone. You now understand how accountants ensure that a company's financial records are a true and fair representation of its performance and position before any official reports are created.

Key Takeaways:

The Adjusted Trial Balance (ATB) is prepared after all period-end adjusting entries have been posted to the general ledger.
Its purpose is to verify the equality of total debits and credits after adjustments and to serve as the single source of truth for preparing financial statements.
The process involves starting with the unadjusted trial balance, posting adjusting entries (often visualized with T-accounts), and compiling the new list of all accounts with their final, correct balances.

Preview of the Next Module:
With a complete and accurate adjusted trial balance, we are now ready to build the key financial reports that communicate a company's story. In our next lesson, we will begin Module 4, "Financial Statements and Analysis," starting with the learning outcome: Explain the structure and purpose of the Moroccan Income Statement (Compte de Produits et Charges - CPC). You will learn how to take the revenue and expense accounts from the adjusted trial balance you just created and organize them into this critical performance report.