4.4 Use the Ledger Balances to Prepare an Adjusted Trial Balance

What is an Adjusted Trial Balance?

An adjusted trial balance is a trial balance prepared after all adjusting entries have been recorded and posted. It shows the updated account balances that will be used to prepare financial statements.

Purpose of Adjusted Trial Balance

1. Verify mathematical accuracy after adjustments
2. Confirm debits equal credits after adjustments
3. Provide updated balances for financial statement preparation
4. Identify any posting errors in adjusting entries

Preparing an Adjusted Trial Balance

Steps:

1. Start with unadjusted trial balance
2. Add adjusting entry amounts to appropriate accounts
3. Calculate new balances
4. List all accounts with updated balances
5. Total debits and credits
6. Verify totals are equal

Example: Adjusted Trial Balance

Using the adjusting entries from Section 4.3, let's prepare an adjusted trial balance:

Updated Account Balances

Assets:

• Cash (510000): €15,000 (no change)
• Accounts Receivable (410000): €3,000 (no change)
• Inventory (321000): €4,000 (€5,000 - €1,000 used)
• Prepaid Insurance (460000): €1,100 (€1,200 - €100 expired)
• Equipment (223000): €30,000 (no change, cost stays same)
• Accumulated Depreciation (241000): €500 (credit balance, contra-asset)

Liabilities:

• Accounts Payable (400000): €8,000 (no change)
• VAT Payable (430000): €500 (no change)
• Unearned Revenue (470000): €2,000 (€3,000 - €1,000 earned)
• Salaries Payable (440000): €1,500 (new from adjustment)
• Interest Payable (450000): €100 (new from adjustment)

Equity:

• Share Capital (101000): €20,000 (no change)
• Retained Earnings (104000): €5,000 (no change)

Revenue:

• Service Revenue (701000): €13,000 (€12,000 + €1,000 earned)

Expenses:

• Salaries Expense (620000): €9,500 (€8,000 + €1,500 accrued)
• Rent Expense (612000): €2,400 (no change)
• Utilities Expense (615000): €1,500 (no change)
• Insurance Expense (613000): €100 (new from adjustment)
• Depreciation Expense (640000): €500 (new from adjustment)
• Interest Expense (660000): €100 (new from adjustment)
• Supplies Expense (619000): €1,000 (new from adjustment)

Adjusted Trial Balance

Le Petit Bistro
Adjusted Trial Balance
November 30, 2024

Account                          Debit      Credit
─────────────────────────────────────────────────
ASSETS
510000 Cash                       €15,000
410000 Accounts Receivable         3,000
321000 Inventory                   4,000
460000 Prepaid Insurance           1,100
223000 Equipment                  30,000
241000 Accumulated Depreciation            €500
                                 ───────
Total Assets                                    €52,600

LIABILITIES
400000 Accounts Payable                    €8,000
430000 VAT Payable                           500
440000 Salaries Payable                     1,500
450000 Interest Payable                       100
470000 Unearned Revenue                     2,000
                                 ───────
Total Liabilities                             €12,100

EQUITY
101000 Share Capital                        €20,000
104000 Retained Earnings                    €5,000
                                 ───────
Total Equity                                 €25,000

REVENUE
701000 Service Revenue                       €13,000

EXPENSES
612000 Rent Expense            €2,400
613000 Insurance Expense         100
615000 Utilities Expense        1,500
619000 Supplies Expense         1,000
620000 Salaries Expense         9,500
640000 Depreciation Expense       500
660000 Interest Expense           100
                                 ───────
Total Expenses                  €15,100

─────────────────────────────────────────────────
TOTALS                         €67,700    €67,700

Verification: Total Debits (€67,700) = Total Credits (€67,700) ✓

Key Differences: Unadjusted vs. Adjusted

Account	Unadjusted	Adjusted	Change
Prepaid Insurance	€1,200	€1,100	-€100 (expired)
Accumulated Depreciation	€0	€500	+€500 (depreciation)
Unearned Revenue	€3,000	€2,000	-€1,000 (earned)
Service Revenue	€12,000	€13,000	+€1,000 (earned)
Salaries Expense	€8,000	€9,500	+€1,500 (accrued)
Insurance Expense	€0	€100	+€100 (expired)
Depreciation Expense	€0	€500	+€500 (depreciation)
Interest Expense	€0	€100	+€100 (accrued)
Supplies Expense	€0	€1,000	+€1,000 (used)

Using Adjusted Trial Balance for Financial Statements

The adjusted trial balance provides the balances needed to prepare financial statements:

Income Statement:

• Use revenue and expense accounts
• Calculate Net Income = Revenue - Expenses
• Net Income: €13,000 - €15,100 = -€2,100 (Net Loss)

Balance Sheet:

• Use asset, liability, and equity accounts
• Include accumulated depreciation (contra-asset)
• Update equity with net income/loss

Luxembourg Compliance Note

In Luxembourg, the adjusted trial balance must:

• Use PCN account classifications
• Include all adjusting entries
• Balance (debits = credits)
• Be retained for 10 years
• Support financial statement preparation

Think It Through

Why is it important that the adjusted trial balance balances before preparing financial statements? What would indicate an error if it doesn't balance?

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