Adjusted Trial Balance for Preparing Final Accounts

What is an adjusted Trial Balance?

The Trial Balance is a statement of ledger account balances as on a particular date (instance). The purpose of preparation of a trial balance is to check the mathematical accuracy of accounting.

A trial balance is also made use of in making up final accounts in manual accounting. Using the trial balance in making up final accounts helps in eliminating the manual tasks of recording the transactions required in final accounting, posting them to the ledgers and rebalancing the ledgers.

Where there are transactions which have not been journalised identified after making up the trial balance, their effect is incorporated into the books through mathematical adjustments. Adjustments are resorted to avoid going back to the journal and ledger.

Adjusted Trial Balance

Adjusted trial balance is a trial balance prepared by modifying the existing trial balance. It would be a list of ledger account balances after recording all the additional transactions whose information is known after the preparation of the existing Trial balance.

How Prepared?

Adjusted trial balance is a statement containing columns for incorporating all the information in the existing trial balance with additional columns for showing adjustments and the modified final balances. It is also extended by adding up any new ledger accounts that may have to be included in the trial balance.

Particulars	Current		Adjustment		Final
Particulars	Amount (Dr)	Amount (Cr)	Amount (Dr)	Amount (Cr)	Amount (Dr)	Amount (Cr)
Salaries Outstanding Salaries	45,000		2,000	2,000	47,000	2,000

Say, Outstanding salaries to the extent of 2,000 have to be adjusted.

Journal
Particulars		Amount (Dr)	Amount (Cr)
Salaries a/c To Outstanding Salaries a/c	Dr	2,000	2,000

In the adjustment column, a debit of 2,000 against salaries and a creit of 2,000 against outstanding salaries is shown.

If the Outstanding Salaries a/c is not present in the current trial balance, then it is appended (added at the end) to the current list of ledger accounts.

After the effect of all adjustments is brought into the trial balance, the amounts of current column and the adjustment columns are clubbed to obtain the amounts of the final column. The particulars column and the amounts in the final column represent the adjusted trial balance.

Making up the adjusted trial balance would result in a trial balance without the need for any adjustments, thus making the task of preparing final accounts very simple.

Illustration - Problem

From the following balances and additional information prepare a Trading and Profit and Loss Account for the year ended 31st December, 20_4 and a Balance Sheet as on that date.

Debit	Amount	Credit	Amount
Purchases Returns Inwards Stock as on 1.1.20_4 Building Machinery Furniture Debtors Drawings Wages Carriage inwards Rent & Rates Bad debts Cash Investment Postage Insurance Salaries	95,500 1,800 20,000 45,000 30,000 25,000 18,000 6,400 13,150 4,200 8,000 7,500 13,500 20,000 4,500 6,000 15,000	Sales Returns outwards Capital Sundry Creditors Interest Commission Bank overdraft	1,98,500 1,300 50,000 24,000 12,800 6,950 40,000
	3,33,550		3,33,550

Additional information:

Value of stock on 31.12._4 26,000
Goods worth 2,800 are taken by the proprietor for his personal use
400 of the insurance paid is in respect of the half year ending on 30^th June, 20_5
Salary of 2,200 for December 20_4 is outstanding

Working Notes - Adjusted Trial Balance

Particulars	Current		Adjustment		Final
Particulars	Amount (Dr)	Amount (Cr)	Amount (Dr)	Amount (Cr)	Amount (Dr)	Amount (Cr)
Purchases Returns Inwards Stock as on 1.1.20_4 Building Machinery Furniture Debtors Drawings Wages Carriage inwards Rent & Rates Bad debts Cash Investment Postage Insurance Salaries Sales Returns outwards Capital Sundry Creditors Interest Commission Bank overdraft Closing Stock Insurance Prepaid Outstanding Salaries	95,500 1,800 20,000 45,000 30,000 25,000 18,000 6,400 13,150 4,200 8,000 7,500 13,500 20,000 4,500 6,000 15,000	1,98,500 1,300 50,000 24,000 12,800 6,950 40,000	2,800 2,200 26,000 400	26,000 2,800 400 2,200	66,700 1,800 20,000 45,000 30,000 25,000 18,000 9,200 13,150 4,200 8,000 7,500 13,500 20,000 4,500 5,600 17,200 26,000 400	1,98,500 1,300 50,000 24,000 12,800 6,950 40,000 2,200
	3,33,550	3,33,550			3,35,750	3,35,750

Working Note

Dr. Closing Stock a/c
Cr. Purchases a/c

26,000
26,000

Since closing stock is being recorded before preparation of Trading a/c we adjust the value of closing stock to the Purchases a/c.

Dr. Drawings a/c
Cr. Purchases a/c

2,800
2,800

Dr. Insurance Prepaid a/c
Cr. Insurance a/c

400
400

Dr. Salaries a/c
Cr. Outstanding Salaries a/c

2,200
2,200

Working Notes - Trial Balance Analysis

Trial Balance Analysis
Account	Description	Account Type	Balance Nature	Where	Which Side	Amount
Purchases Returns Inwards Stock as on 1.1.20_4 Building Machinery Furniture Debtors Drawings Wages Carriage inwards Rent & Rates Bad debts Cash Investment Postage Insurance Salaries Sales Returns outwards Capital Sundry Creditors Interest Commission Bank overdraft Closing Stock Insurance Prepaid Outstanding Salaries	Direct Expenses Direct Expenses Direct Expenses Asset Asset Asset Asset Asset Direct Expenses Direct Expenses Indirect Expenses Losses Asset Asset Indirect Expenses Indirect Expenses Indirect Expenses Direct Incomes Direct Incomes Liability Liability Indirect Incomes Indirect Incomes Liability Asset Asset Liability	Nominal Nominal Nominal Real Real Real Real Real Nominal Nominal Nominal Nominal Real Real Nominal Nominal Nominal Nominal Nominal Personal Personal Nominal Nominal Personal Real Personal Personal	Debit Debit Debit Debit Debit Debit Debit Debit Debit Debit Debit Debit Debit Debit Debit Debit Debit Credit Credit Credit Credit Credit Credit Credit Debit Debit Credit	Trdg Trdg Trdg B/S B/S B/S B/S B/S Trdg Trdg P/L P/L B/S B/S P/L P/L P/L Trdg Trdg B/S B/S P/L P/L B/S B/S B/S B/S	Debit Debit Debit Assets Assets Assets Assets Assets Debit Debit Debit Debit Assets Assets Debit Debit Debit Credit Credit Liabilities Liabilities Credit Credit Liabilities Assets Assets Liabilities	66,700 1,800 20,000 45,000 30,000 25,000 18,000 9,200 13,150 4,200 8,000 7,500 13,500 20,000 4,500 5,600 17,200 1,98,500 1,300 50,000 24,000 12,800 6,950 40,000 26,000 400 2,200

Final accounting is completed by placing each figure in either the Trading a/c or the Profit and Loss a/c or the Balance Sheet.
Each figure is to be considered only once.
The only adjustment to be made is for transferring Net Profit or Loss to Capital.

Solution - Trading and Profit and Loss a/c

Trading and Profit and Loss a/c for the year ending 31/03/_4.

Trading and Profit & Loss a/c
DrCr
Particulars	Amount	Amount	Particulars	Amount	Amount
To Opening Stock To Purchases − Return Outwards To Wages To Carriage Inwards To Gross Profit	66,700 1,300	20,000 65,400 13,150 4,200 93,950	By Sales − Return Inwards	1,98,500 1,800	1,96,700
		1,96,700			1,96,700
To Rent & Rates To Bad Debts To Postage To Insurance To Salaries To Net Profit		8,000 7,500 4,500 5,600 17,200 70,900	By Gross Profit By Interest By Commission		93,950 12,800 6,950
		1,13,700			1,13,700

Notes (Assumptions)

Returns outwards a/c (purchase returns) has a credit balance. It goes on the credit side of Trading a/c. However, the balance is deducted from purchases on the debit side of Trading a/c to derive the figure of Net Purchases.
Crediting an amount in a ledger account and deducting the amount from any debit side amount would give the same result.
Returns inwards a/c (sales returns) has a debit balance. It goes on the debit side of Trading a/c. However, the balance is deducted from sales on the credit side of Trading a/c to derive the figure of Net Sales.
Debiting an amount in a ledger account and deducting the amount from any credit side amount would give the same result.
Bad Debts are losses on account of debtors not paying up. They being losses are transferred to the Profit and Loss a/c.
Gross Profit is transferred from the Trading a/c to the Gross Profit a/c and from there to the Profit and Loss a/c.
Net Profit is transferred from the Trading a/c to the Net Profit a/c and from there to the Capital a/c.

Solution - Balance Sheet

Balance Sheet of __ as on 31^st December 20_4
Liabilities	Amount	Amount	Assets	Amount	Amount
Capital + Net Profit − Drawings Sundry Creditors Bank Overdraft Outstanding Salaries	50,000 70,900 1,20,900 9,200	1,11,700 24,000 40,000 2,200	Building Machinery Furniture Debtors Cash Investment Closing Stock Insurance Prepaid		45,000 30,000 25,000 18,000 13,500 20,000 26,000 400
		1,77,900			1,77,900

Notes (Assumptions)

Working notes for adjustments
Net Entry	Adjustment	Side	Where
Dr. Net Profit a/c Cr. Capital a/c	1. (×) Closed 2. (+) to Capital	Liabilities	B/S
Dr. Capital a/c Cr. Drawings a/c	1. (−) from Capital 2. (×) Closed	Liabilities	B/S

Author : The Edifier

Page 15