What is an adjusted trial balance?
One of the most important and difficult topics on the FAR section of the CPA exam is “adjusting journal entries’. You will need to understand why a company would record “adjusting journal entries” to its general ledger / unadjusted trial balance. A company will always start with the unadjusted trial balance or general ledger at the end of the period and determine whether adjusting journal entries need to be recorded. Adjusting journal entries are recorded to properly state the companies revenues, expenses, and balance sheet accounts at the end of a period. Once the company records all of the necessary adjusting entries, you have the adjusted trial balance, which is used to prepare the financial statements.
One way to think about the adjusted trial balance is how you fix up your car. Your car is drivable, but you need to make some “adjustments” to it so that it runs perfectly. Once you make the adjustments, your car is ready for those long road trips. The 3 steps in the visual below will help you remember just how simple this process is!
In the Universal CPA Review FAR materials, we simulate the experience of starting with an unadjusted trial balance, recording several key adjusting entries, and then arriving at the adjusted trial balance. Below is an example adjusted trial balance for Mighty Dragon! The key thing to remember is that the debits and credits must always sum to $0, and the adjusting/adjusted trial balance must also sum to $0.
If you want to see how an adjusted trial balance comes together in Excel, download the file linked below. The file will include the Mighty Dragon adjusting entries!
Also, here is the lecture video that was uploaded to YouTube that will take you through the entire process. You can subscribe to a free trial on the Universal platform to work through the MCQs and simulations on this important topic.
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