Adjusted Trial Balance Overview

Accurate financial reporting starts with a reliable adjusted trial balance. Businesses must update account balances through adjusting entries before creating financial statements like the income statement and balance sheet. An adjusted trial balance ensures financial data is complete, correct, and ready for reporting.

What Is an Adjusted Trial Balance?

An adjusted trial balance is a crucial internal document used by businesses to ensure accurate financial reporting. It reflects the balances of all the accounts after adjustments for accrued expenses, deferred revenues, or missing transactions. This process ensures that debits and credits are properly matched, helping to present a more accurate picture of the company’s financial health before preparing formal financial statements.

Unadjusted vs Adjusted Trial Balance

An unadjusted trial balance is a preliminary listing of all general ledger accounts and their balances before adjustments. It highlights discrepancies but doesn’t include corrections like accrued expenses or depreciation.

An adjusted trial balance, on the other hand, includes necessary updates, ensuring that the financial data is accurate and complete for preparing official financial statements.

What Are Adjusting Entries?

Adjusting entries are necessary corrections made to accounts to reflect the actual financial situation at the end of the accounting period. These entries are critical for updating accounts like accrued expenses, unearned revenue, and depreciation.

Example

If a business owes employees for work completed but hasn’t paid them yet, an adjusting entry will record the liability in the books. These adjustments are vital to ensure that all financial transactions are properly reflected in the adjusted trial balance.

How to Prepare an Adjusted Trial Balance

Preparing an adjusted trial balance requires attention to detail to avoid errors in your financial statements. If you're unfamiliar with adjusting entries or balancing accounts, work with a small business accounting professional to ensure your records are accurate from the start.

1. Ensure All Business Transactions Are Recorded

Begin by ensuring that all business transactions have been recorded during the period. This includes sales, purchases, receipts, and payments. Double-entry accounting ensures each transaction is reflected as both a debit and a credit, which balances the books.

Example: A business in Jacksonville, FL, sold $5,000 in goods on credit and makes this journal entry:

Date	Account	Debit ($)	Credit ($)
12/15/2024	Accounts Receivable	5,000
12/15/2024	Revenue		5,000

This shows that the Accounts Receivable account is debited by $5,000 to reflect the amount owed by the customer, while the Revenue account is credited by the same amount to reflect the income from the sale.

2. Prepare an Unadjusted Trial Balance

The unadjusted trial balance lists all of the accounts and their balances before any adjustments are made. At this stage, businesses review the debits and credits to ensure they are balanced. 

If the debits do not equal the credits, an error has occurred in the journal entries. It must be identified and corrected before proceeding with adjustments.

Example: After recording all the transactions, their unadjusted trial balance looks like this:

ABC Ltd.

Unadjusted Trial Balance

As of December 31, 2024

Account	Debit ($)	Credit ($)
Cash	10,000
Accounts Receivable	5,000
Inventory	8,000
Prepaid Expenses	1,500
Rent Expense	2,000
Utilities Expense	500
Accounts Payable		3,500
Revenue		10,000
Wages Payable		1,000
Notes Payable		7,000
Owner’s Equity		5,500
Totals	27,000	27,000

3. Make Adjusting Entries

Once you have the unadjusted trial balance, adjustments are needed to account for transactions that occurred during the period but have not yet been recorded.

Adjusting Entry #1: Prepaid Expenses Used Up

The company has used $500 of its insurance that was prepaid and previously entered as a prepaid expense.

Date	Account	Debit ($)	Credit ($)
12/31/2025	Insurance Expense	500
12/31/2025	Prepaid Expenses		500

Impact:

• Decrease the asset Prepaid Expenses.

• Record an Insurance Expense.

Adjusting Entry #2: Accrued Wages

The company’s employees earned an additional $1,500 in wages that haven't been paid yet. Under the accrual basis of accounting, the business must recognize the wage expense even though payment has not been made (See page 10). 

The adjusting entry would look like this:

Date	Account	Debit ($)	Credit ($)
12/31/2024	Wages Expense	1,500
12/31/2024	Wages Payable		1,500

Impact:

• Increase Wages Payable liability.
  

• Record an unpaid Wages Expense.

4. Run Your Adjusted Trial Balance

After making the necessary adjustments, run the adjusted trial balance to check that every debit balance matches its corresponding credit balance. If they do, then your adjusted trial balance is ready for use in the creation of your final financial statements. If not, revisit the adjustments to ensure accuracy.

Example: After adjusting for the $1,500 in accrued expenses and $500 in prepaid expenses, the adjusted trial balance would now look like this:

ABC Ltd.

Adjusted Trial Balance

As of December 31, 2024

Account	Debit ($)	Credit ($)
Cash	10,000
Accounts Receivable	5,000
Inventory	8,000
Prepaid Expenses	1,000
Rent Expense	2,000
Utilities Expense	500
Insurance Expense	500
Wages Expense	1,500
Accounts Payable		3,500
Revenue		10,000
Wages Payable		2,500
Notes Payable		7,000
Owner’s Equity		5,500
Totals	28,500	28,500

Schedule an appointment with our accounting professionals to keep your financial records accurate and up to date.

The Adjusted Trial Balance in the Accounting Cycle

The adjusted trial balance is prepared after journal entries and postings to the general ledger, and before preparing financial statements. It ensures all financial data is accurate when finalizing financial statements.

Common Adjustments

Here are the most common adjustments businesses typically make when preparing an adjusted trial balance:

• Accrued Revenues: Revenue earned for goods or services provided but not yet billed, such as monthly subscription services or completed projects.

• Accrued Expenses: Expenses that have been incurred but not yet paid, such as wages, utilities, and rent.

• Unearned Revenue: Money received in advance for services or goods not yet delivered.

• Depreciation: The allocation of an asset’s cost over its useful life.

• Prepaid Expenses: Payments made in advance for goods or services to be received in future periods.

Accounts Included in an Adjusted Trial Balance

The adjusted trial balance includes five major categories of accounts: Assets, Liabilities, Equity, Revenue, and Expenses. These categories must reflect any necessary adjustments to ensure the accounts accurately represent the business's financial activities and position.

Adjusted Trial Balance Best Practices 

Follow these best practices to ensure accuracy when preparing an adjusted trial balance:

1. Double-check adjustments. Make sure all adjusting entries are accurately recorded and supported by proper documentation.

2. Use accounting software. Accounting software reduces human error, simplifies the process, and streamlines your financial operations.

3. Review accounts periodically. Review your accounts regularly during each period to catch mistakes early on.

Common Mistakes to Avoid

Avoid these common pitfalls when preparing an adjusted trial balance:

• Missing Adjusting Entries: Overlooking small transactions, such as a business purchase paid with a personal credit card, can cause discrepancies in the financial records if not properly adjusted.

• Not Reconciling Accounts: Failing to reconcile accounts can lead to discrepancies that carry over into financial statements.

• Double-Counting Entries: This can occur when a transaction is recorded more than once, leading to inflated totals and inaccurate financial reporting.

• Not Balancing Debits and Credits: A failure to ensure that every debit has a corresponding credit will cause discrepancies in your trial balance, leading to incorrect financial statements.

• Overlooking Tax Adjustments: Ignoring tax-related adjustments can lead to inaccurate income reporting, potential penalties, and missed deductions that could reduce your business’s tax liability. 

Wrap Up Your Records the Right Way

An accurate adjusted trial balance keeps your financial records clear, organized, and reliable. It confirms that all account balances reflect necessary updates and that total debits and credits remain in balance.

If the adjustment process becomes too complex, an accounting professional can help you ensure your records stay accurate for stronger financial management. Reliable reporting leads to better business decisions and long-term success.