Adjusted Trial Balance

Adjusted Trial Balance

As we have discussed that you cannot prepare accounts on the basis of unadjusted trial balance. Because it does not have the effect of adjusting entries, we cannot do final accounting such as preparation of income statement, balance sheet and statement of changes in equity. So, an adjusted trial balance is prepared after inserting the effect of adjusting entries into the unadjusted trial balance. Adjusted trial balance format is very similar to the unadjusted trial balance.

Example

We have prepared adjusted trial balance after taking adjusting entries into account.

Company XYZ Adjusted Trial Balance 30 June, 2016
	Debit	Credit
Cash	81,000
Capital		100,000
Prepaid Rent (17,000-10,000)	7,000
Computer	15,000
Electricity Expense	4,000
Sales Account		60,000
Accounts Receivable	40,000
Raw Material	25,000
Accounts Payable		25,000
Salaries Expense	3,000
Depreciation Expense	10,000
Provision for Depreciation		10,000
Water Expenses	1,000
Water Bill Payable		1,000
Rent Expense	10,000
Interest Expense	10,000
Interest Payable		10,000
Total	206,000	206,000

 

The next stage in the accounting cycle is the Closing Entries.

Example 2:

Sigma Plc is a company engaged in manufacturing shoes business. Following transactions relate to Sigma Plc for the period ended 31 Dec 2016:

1. Capital invested $20,000,000.
2. Sales for the year amounts to $10,000,000, 90 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} of the sales are on credit terms.
3. Credit purchases are $4,000,000 which is 80 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} of the total purchase.
4. Electric expenses are $500 for the year.
5. Entertainment expenses are $400 for the year.
6. Cleaning expense is $1600 for the year ended 31 Dec, 2016.
7. Telephone expenses are $800.
8. Printing & stationary expenses are $700.
9. Travelling expenses are $2,500.
10. Long term loan $800,000 obtained from bank on 1^st The interest payable on this loan is 15 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c}. Amount paid against loan principle amount is 50,000.
11. Fixed asset on 1^st Jan 2017 is $4,000. Depreciations to be provided @ 20 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c}.

Required: Pass on the journal entries and prepare un-adjusted trial balance.

Solution

1.

	Debit	Credit
Cash	20,000,000
Capital		20,000,000

2. In order to make correct entry for sales, we need to find out cash sales & credit sales figure as well. We can get this figure by multiplying total sales by relevant percentages.

Cash sales: 10,000,000 x 10 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} = $ 1,000,000

Credit sales: 10,000,000 x 90 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} = $ 9,000,000

	Debit	Credit
Account receivable	9,000,000
Cash	1,000,000
Sales		10,000,000

3. We need to find out the cash purchase figure which we can get easily by dividing 4,000,000 by 80 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c}.

Total purchase = 4,000,000 / 80 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} = $ 5,000,000

Cash purchase = 5,000,000 – 4,000,000 = $ 1,000,000

	Debit	Credit
Purchase	5,000,000
Cash		1,000,000
Accounts payable		4,000,000

4. Entries 3 to 8 would be passed on like this:

	Debit	Credit
Electric expenses	500
Entertainment expense	400
Cleaning expense	1,600
Telephone expense	800
Printing & stationary expense	700
Travelling expense	2,500
Cash		6,500

5. Loan obtained from bank: Interest expense = 800,000 * 15 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} = $ 120,000.

	Debit	Credit
Cash	800,000
Long term loan		800,000
Long term loan	50,000
Cash		50,000
Interest expense	120,000
Cash		120,000

6. Fixed assets WDV (Write down value) – 31 Dec 2017 = 4,000 – 4,000 (20{1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c}) = $3,200.

	Debit	Credit
Depreciation expense	800
Allowance for depreciation		800

Un-adjusted trial balance

Particulars	Debit	Credit
Capital (20,000,000)		20,000,000
Accounts receivable ( 9,000,000	9,000,000
Cash (20,000,000+1,000,000-1,000,000-6,500+800,000-50,000-120,000)	20,623,500
Sales 10,000,000		10,000,000
Purchase	5,000,000
Accounts payable		4,000,000
Electricity expenses	500
Entertainment expense	400
Cleaning expense	1,600
Telephone expense	800
Printing & stationary expense	700
Travelling expense	2,500
Loan term loan ( 800,000 – 50,000)		750,000
Interest expense	120,000
	34,750,000	34,750,000

 

Adjusted Trail Balance

In order to prepare adjusted trial balance, we need to transfer items of sales and expenses into a temporary account called Income & Summary account. After that, income & summary account is closed by transferring its balance to the Retained earning account.

	Debit	Credit
Sales	10,000,000
Purchase		5,000,000
Electricity expense		500
Entertainment expense		400
Cleaning expense		1,600
Telephone expense		800
Printing & stationary expense		700
Travelling expense		2,500
Interest expense		120,000
Retained earnings		4,873,500

 

Now, we will prepare adjusted trial balance as follows:

Adjusted Trial Balance
Particulars	Debit	Credit
Capital (20,000,000)		20,000,000
Accounts receivable ( 9,000,000	9,000,000
Cash ( 20,000,000+1,000,000-1,000,000-6,500+800,000-50,000-120,000)	20,623,500
Accounts payable		4,000,000
Loan term loan ( 800,000 – 50,000)		750,000
Retained earnings		4,873,500
	29,623,500	29,623,500

 

Question Answer for Adjusting Trial Balance

Michael is a popular business name in the electronic equipment industry. Within a short period of time, he gained momentum in the business and his strategies are working out in his favor. Following is the trial balance of the business on June 30, 2015.

DEBIT BALANCES		CREDIT BALANCES
Cash	20,000	Creditors	20,000
Bank	30,000	Loan	120,000
Computers	34,000	Unearned rent income	10,000
Plant & machinery	50,000	Payroll payable	2,000
Office equipment	10,000	Share capital	200,000
Cost of sale	150,000	Sales revenue	208,000
Sales return	30,000	Advance from clients	30,000
Payroll expenses	36,000
Prepaid insurance	32,000
Inventory	46,000
Patents	24,000
Office supplies	8,000
Debtors	120,000
	590,000		590,000

 

Additional Information:

1. Payroll expenses for the year 30,000.
2. Interest is payable on loan @ 10 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} for three months.
3. Unused office supplies 1,000.
4. Prepaid insurance 4,000.

Required

1. Prepare an Adjusting Trial Balance as on June 30, 2015 for Michael.
2. Record closing entries.

Michael Company

Adjusting Trial Balance

As on June 30, 2015

Head	Debit	Credit
Cash	20,000
Bank	30,000
Computers	34,000
Plant & machinery	50,000
Equipment	10,000
Cost of sales	150,000
Sales return	30,000
Payroll expense	30,000
Prepaid insurance	4,000
Inventory	46,000
Patents	24,000
Office supplies	1,000
Debtors	120,000
Creditors		20,000
Loan		120,000
Unearned rent income		10,000
Payroll payable		2,000
Share capital		200,000
Sales		208,000
Advance from clients		30,000
Prepaid payroll	6,000
Insurance expenses	28,000
Office supplied consumed	7,000
Interest expense	3,000
Interest payable		3,000
	593,000	593,000

 

Michael Company

Closing Entries

Date	Particulars	Debit	Credit
	Expense & Revenue Summary Cost of goods sold Sales return Payroll expense Insurance expense Office supplies expense Interest expense (To close all debit balances of income statement.)	221,000	150,000 3,000 30,000 28,000 7,000 3,000
	Sales Expense & Revenue Summary (To close sale account.)	208,888	208,000
	Share capital Expense & Revenue Summary (Transfer of net loss to capital account.)	13,000	13,000

 

Related Posts: Trial Balance MCQS