Trial balance for the Year End
The above trial balance example is for the end of the financial year.
It has all the figures for the full year of trading.
The debit column and credit column add up to the same total of $64,030.70, making the difference $0.00 - which means it is in balance.
What order are trial balance accounts in?
All the accounts above the solid line (just below retained earnings) are:
- Assets, Liabilities and Equity, which are found on a balance sheet report
- Called permanent accounts because the figures build up (accumulate) over the years
All the accounts below that line (starting with sales) are:
- Income and Expenses which are found on an income statement also called a Profit and Loss Report (this would include cost of sales too except there are none of those in this example)
- Called temporary accounts because the balances are cleared out taking them to 0.00 for the new financial year
What is a Trial Balance Adjusted/Unadjusted Report
The above example is the unadjusted report.
This means it is the report printed and saved before the accountant has prepared the annual financial statements and tax returns.
Any adjustments that the Accountant makes are done with journal entries.
What adjustments does an accountant make?
- Any errors made by the bookkeeper through the year are corrected
- Changes are made so the business gets the best possible income tax benefits
- The temporary accounts are cleared
The trial balance will be prepared again to make sure the accounts balance after the adjustments are done – the adjusted report.
In modern bookkeeping software like Xero you won’t find the words adjusted and unadjusted – it applies more to manual bookkeeping.
So, even though adjustments are made in the software, the trial balance report will simply be called Trial Balance. There is no Adjusted/Unadjusted Trial Balance.
How do you know then that the final adjustments have been made?
The temporary accounts will be empty. Reminder: the temporary accounts are the Income and Expense accounts.