The unadjusted trial balance proves the ledger's arithmetic. The adjusted trial balance is the one the statements are actually built from.
Between them sit the adjusting entries: the accruals and deferrals that move revenue and expense into the period they belong to. An unadjusted trial balance can be perfectly in balance and still be wrong about the period. It can report a full year of prepaid insurance as an asset on December 31, with no insurance expense anywhere. Adjustment is what fixes that, and the adjusted trial balance is the record that the fix was made.
Once it exists, statement preparation is sorting rather than judgment. Every revenue and expense balance goes to the income statement. Every asset, liability, and equity balance goes to the balance sheet, with retained earnings still carrying its opening figure until closing runs. The income statement's bottom line is then what the statement of changes in equity needs, and the ending equity is what the balance sheet needs.
It is also the last checkpoint before closing. After closing, the temporary accounts are empty and the detail that produced net income is no longer visible in the ledger.
Put the concept to work
Understand this concept
- Explain where the adjusted trial balance sits in the accounting cycle and what it carries that the unadjusted one does not.
Apply this concept
- Post a set of adjusting entries to an unadjusted trial balance, produce the adjusted balances, and sort each one into the statement it belongs to.
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Build on these ideas
- Adjusted trial balance — Understand
To apply this concept: Required. Building the artifact requires knowing what it is for.
- Adjusting entry — Apply
To understand this concept: Required. The adjustments are what make it adjusted.
- Balance sheet — Understand
To apply this concept: Required. The asset, liability, and equity balances are read off into the balance sheet.
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- Income statement — Understand
To apply this concept: Required. The revenue and expense balances are read off into the income statement.
- Trial balance — Understand
To understand this concept: Required. The adjusted version is the same artifact drawn at a later point.
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Practice
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Related concepts
Show 2 more related concepts
Use this idea next
- Adjusted trial balance — Apply
Required level here: understand. Required. Building the artifact requires knowing what it is for.
Used in these readings
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