Treat the income statement and balance sheet columns like a
double-entry accounting system, where if you have a debit on the
income statement side, you must have a credit equaling the same
amount on the credit side. In this case we added a debit of $4,665
to the income statement column. This means we must add a credit of
$4,665 to the balance sheet column. Once we add the $4,665 to the
credit side of the balance sheet column, the two columns equal
$30,140.
If you look at the worksheet for Printing Plus, you will notice there is no retained earnings account. That is because they just started business this month and have no beginning retained earnings balance. To get the numbers in these columns, you take the number in the trial balance column and add or subtract any number found in the adjustment column.
Adjusted Trial Balance
Your unadjusted trial balance becomes an adjusted trial balance after you apply all of these adjusting items. In the end, accounting software came as a saviour and the double-entry bookkeeping system became the knight in the shining armour for the accountants. These examples will show you how to adjust an unadjusted trial balance looks like. There is a worksheet approach a company may use to make sure
end-of-period adjustments translate to the correct financial
statements. Before accounting software, people had to do all of their accounting manually, using something called the accounting cycle. Financial statements drawn on the basis of this version of trial balance generally comply with major accounting frameworks, like GAAP and IFRS.
If the final balance in the ledger account (T-account) is a debit balance, you will record the total in the left column of the trial balance. If the final balance in the ledger account (T-account) is a credit balance, you will record the total in the right column. Service Revenue adjusted trial balance example had a $9,500 credit balance in the trial balance
column, and a $600 credit balance in the Adjustments column. To get
the $10,100 credit balance in the adjusted trial balance column
requires adding together both credits in the trial balance and
adjustment columns (9,500 + 600).
Understanding The Adjusted Trial Balance
The statement of retained earnings will include beginning retained earnings, any net income (loss) (found on the income statement), and dividends. The balance sheet is going to include assets, contra assets, liabilities, and stockholder equity accounts, including ending retained earnings and common stock. To prepare the financial statements, a company will look at the
adjusted trial balance for account information. From this
information, the company will begin constructing each of the
statements, beginning with the income statement.
Notice the net income of
$4,665 from the income statement is carried over to the statement
of retained earnings. Dividends are taken away from the sum of
beginning retained earnings and net income to get the ending
retained earnings balance of $4,565 for January. This ending
retained earnings balance is transferred to the balance sheet. The statement of retained earnings (which is often a component
of the statement of stockholders’ equity) shows how the equity (or
value) of the organization has changed over a period of time. The
statement of retained earnings is prepared second to determine the
ending retained earnings balance for the period.