The Adjusted Trial Balance and Financial Statements

The Adjusted Trial Balance and Financial Statements -...

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The Adjusted Trial Balance and Financial Statements After a company has journalized and posted all adjusting entries, it prepares another trial balance from the ledger accounts. This trial balance is called an adjusted trial balance . It shows the balances of all accounts, including those adjusted, at the end of the accounting period. The purpose of an adjusted trial balance is to prove the equality of the total debit balances and the total credit balances in the ledger after all adjustments. Because the accounts contain all data needed for financial statements, the adjusted trial balance is the primary basis for the preparation of financial statements . Preparing the Adjusted Trial Balance Illustration 4-26 presents the adjusted trial balance for Sierra Corporation prepared from the ledger accounts in Illustration 4-25 . The amounts affected by the adjusting entries are highlighted in color. Illustration 4-26 Adjusted trial balance
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Preparing Financial Statements
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Unformatted text preview: Companies can prepare financial statements directly from an adjusted trial balance. Illustrations 4-27 and 4-28 present the interrelationships of data in the adjusted trial balance of Sierra Corporation. As Illustration 4-27 shows, companies prepare the income statement from the revenue and expense accounts. Similarly, they derive the retained earnings statement from the retained earnings account, dividends account, and the net income (or net loss) shown in the income statement. As Illustration 4-28 shows, companies then prepare the balance sheet from the asset, liability, and stockholders' equity accounts. They obtain the amount reported for retained earnings on the balance sheet from the ending balance in the retained earnings statement. Preparation of the income statement and retained earnings statement from the adjusted trial balance Illustration 4-28 Preparation of the balance sheet from the adjusted trial balance...
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The Adjusted Trial Balance and Financial Statements -...

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