Preparing the adjusted trial balance is the 6th step in the accounting cycle.
We learned earlier that a trial balance is a list of company accounts and their ending ledger balances.
The adjusted trial balance is prepared after our accounts have been adjusted. It represents the best information a company has to prepare financial statements and is the basis for financial statement preparation.
Let's also remember the trial balance lists accounts in the following order; assets, liabilities, equity, revenues and expenses.
Starting with an unadjusted trial balance, we make the adjusting journal entries and post them to the ledger. Then the ending ledger balances after adjustment is used to prepare the adjusted trial balance.
Recall that the adjusted trial balance represents the best information we can provide our investors and creditors.
We will use the adjusted trial balance to prepare the financial statements.
For example, revenues and expenses will go on the income statement and produce net income.
Owners capital, owners withdrawals, if this company had any, and net income from the income statement will go on the statement of owner's equity and produce ending owner's capital.
Lastly, assets, liabilities and owner's capital, from the statement of owner's equity, will go on the balance sheet.
We will learn more about financial statements in Accounting Cycle step 7, preparing financial statements.