The adjusted trial balance

The adjusted trial balance is the unadjusted trial balance plus every adjusting entry. Because each adjustment is balanced, the adjusted trial balance still balances — but the amounts now reflect what the period actually earned and used. The financial statements are prepared from it: income and expense balances go to the income statement, assets, liabilities and equity to the statement of financial position, and dividends to the statement of changes in equity.

A worksheet with columns for unadjusted, adjustments and adjusted makes the work easy to review: each adjustment's effect can be traced to the accounts it touches, and every column pair must agree. To fill it in, take each account's unadjusted balance, add adjustments on the same side and deduct adjustments on the opposite side. An account with no adjustment carries straight across; an account that didn't exist before (Salaries payable, Depreciation expense) appears for the first time.

Every adjustment touches one balance-sheet account and one income-statement account — that is what makes them adjustments. So each one changes profit and an asset or liability by the same amount: - prepayments used and depreciation reduce assets and profit; - accrued expenses increase liabilities and reduce profit; - unearned revenue now earned reduces liabilities and increases profit; - accrued revenue increases assets and profit.

Checking it. The adjustment columns must agree with each other and the adjusted columns must agree. If they don't, one adjustment was posted to one account only, or with different amounts. Then check reasonableness: does Prepaid insurance equal the months of cover left? Does Supplies equal the count? Does Accumulated depreciation only ever grow? Those checks catch adjustments that balance but are wrong.

Retained earnings in the adjusted trial balance is still the opening figure: this period's profit lives in the income and expense accounts until the closing entry moves it.