Question

What is the purpose of the "adjustment" of the Trial Balance worksheet? Using any example from your textbook, outline why the adjustment was made and what impact did it have on the Trial Balance.

Answer 1

Adjusting entries are prepared at the end of the accounting period for: accrual of income, accrual of expenses, deferrals, prepayments, depreciation, and allowances.

This is the second trial balance prepared in the accounting cycle. Its purpose is to test the equality between debits and credits after adjusting entries are entered into the books of the company.

To illustrate how it works, here is a sample unadjusted trial balance:

After posting the above entries, the values of some of the items in the unadjusted trial balance will change. Take the first adjusting entry. Accounts Receivable is debited hence is increased by $300. Service Revenue is credited for $300.

The balance of Accounts Receivable is increased to $3,700, i.e. $3,400 unadjusted balance plus $300 adjustment. Service Revenue will now be $9,850 from the unadjusted balance of $9,550.

Next entry. Utilities Expense and Utilities Payable did not have any balance in the unadjusted trial balance. After posting the above entries, they will now appear in the adjusted trial balance.

Third. Service Supplies Expense is debited for $900. Service Supplies is credited for $900. The Service Supplies account had a debit balance of $1,500. After incorporating the $900 credit adjustment, the balance will now be $600 (debit).

And fourth. There were no Depreciation Expense and Accumulated Depreciation in the unadjusted trial balance. Because of the adjusting entry, they will now have a balance of $720 in the adjusted trial balance.