Definition:
An adjusted trial balance is a list of all general ledger accounts and their balances after adjusting entries have been made. It’s used to ensure that the total debits equal the total credits and to prepare financial statements.
Key points about adjusted trial balance:
- Adjusting entries: Adjusting entries are made to update account balances for items that have not yet been recorded or have been recorded incorrectly.
- Debit/credit equality: The adjusted trial balance should have equal debits and credits.
- Financial statements: The adjusted trial balance is used to prepare the income statement, balance sheet, and statement of cash flows.
Why is adjusted trial balance important?
- Accuracy: It helps to ensure the accuracy of financial statements by verifying that debits and credits are equal.
- Error detection: It can help to identify errors in the accounting process.
- Financial reporting: It is a necessary step in the accounting cycle before preparing financial statements.
In essence, adjusted trial balance is a crucial tool in the accounting process that helps to ensure the accuracy and reliability of financial statements.
