Preparing an Adjusted Trial Balance

Accounting Cycle  
1.  Analyze Transactions 5.  Prepare Adjusting Journal Entries 9.  Prepare Closing Entries
2.  Prepare Journal Entries 6.  Post Adjusting Journal Entries 10.  Post Closing Entries
3.  Post journal Entries 7.  Prepare Adjusted Trial Balance 11. Prepare Post-Closing Trial Balance
4.  Prepare Unadjusted Trial Balance 8.  Prepare Financial Statements
In our detailed accounting cycle, we just finished step 5 preparing adjusting journal entries.  The next step is to post the adjusting journal entries.  We will use the same method of posting (ledger card or T-accounts) we used for step 3 as we are just updating the balances.  Remember, you do not change your journal entries for posting -- if you debit in an entry you debit when you post.  After we post the adjusting entries, it is necessary to check our work and prepare an adjusted trial balance.

Let's look at the company we have been using in our examples MicroTrain.  The unadjusted trial balance is as follows:

Debit Credit
Cash            10,000
Accounts Receivable            20,000
Supplies              8,500
Prepaid Insurance              2,400
Trucks            40,000
Accounts Payable            25,000
Unearned Revenue              4,500
Common Stock            35,000
Retained Earnings              6,100
Service Revenue            30,000
Salaries Expense            18,000
Rent Expense              1,200
Utilities Expense                  500
TOTALS          100,600          100,600
The adjusting entries from the previous examples are:

Debit Credit
1) Dec 31 Accounts Receivable      5,000
     Service Revenue   5,000
To record December accrued revenue.    
2) Dec 31 Interest Receivable         600
     Interest Revenue   600
To record December accrued interest revenue.    
3) Dec 31 Salaries Expense          360
     Salaries Payable   360
To record salaries earned but not paid.    
4) Dec 31 Unearned Revenue        1,500
     Service Revenue   1,500
To record deferred revenue now earned.    
5) Dec 31 Insurance Expense          200
     Prepaid Insurance   200
To record one month of insurance expired.    
6) Dec 31 Supplies expense       7,000
       Supplies   7,000
To record supplies used.    
7) Dec 31 Depreciation Expense        750
       Accumulated Depreciation - Trucks   750
To record one month of depreciation.    
We can post these transactions using T-accounts or ledger cards.  We are using the same posting accounts as we did for the unadjusted trial balance just adding on.  Click Adj T-accounts to see the full posting.  Notice how we start with the unadjusted trial balance in each account and add any debits on the left and any credits on the right.

Once the posting is complete and the new balances have been calculated, we prepare the adjusted trial balance.  As before, the adjusted trial balance is a listing of all accounts with the ending balances and in this case it would be adjusted balances.

Debit Credit
Cash            10,000
Accounts Receivable            25,000
Interest Receivable                  600
Supplies              1,500
Prepaid Insurance              2,200
Trucks            40,000
Accum. Depreciation-Trucks                  750
Accounts Payable            25,000
Unearned Revenue              3,000
Salaries Payable                  360
Common Stock            35,000
Retained Earnings              6,100
Service Revenue            36,500
Interest Revenue                  600
Salaries Expense            18,360
Rent Expense              1,200
Utilities Expense                  500
Insurance Expense                  200
Supplies Expense              7,000
Depreciation Expense                  750
TOTALS          107,310          107,310
The next step in the accounting cycle would be to complete the financial statements.

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