Accounting & FinanceLevel: Intermediate

Preparing an Adjusted Trial Balance: A Worked Example

Prepared by the Assignment Achievers accounting team.

Free Educational Resource

Problem Statement / Assignment Scope

At its year end, Harbour Consulting has done £3,200 of work it hasn't invoiced yet, £1,800 of its prepaid insurance has been used up, and its equipment needs £5,000 of depreciation for the year. Write the adjusting journal entries and explain how they change the trial balance.

Prerequisites: Double-entry bookkeeping, ledger accounts and the accruals concept.

Step-by-Step Worked Solution

1. The adjusting entries

Account and narrative	Debit (£)	Credit (£)
Accrued Income (Receivables) (Fees earned this year, invoiced next year)	3,200	-
Consulting Fees	-	3,200
Insurance Expense (Portion of prepaid cover used up)	1,800	-
Prepaid Insurance	-	1,800
Depreciation Expense — Equipment (Charge for the year)	5,000	-
Accumulated Depreciation — Equipment	-	5,000

2. Effect on the trial balance

Each entry adds the same amount to both sides, so the adjusted trial balance still balances: total debits and total credits each rise by £10,000. Profit for the year changes by +£3,200 − £1,800 − £5,000 = −£3,600.

3. The principle behind it

Under the accruals (matching) concept, income and expenses belong to the period they relate to, not the period when cash changes hands. That's why work done but not billed is income now, and insurance paid for in advance only becomes an expense as it's used.

Key Takeaways & Core Principles

Each adjusting entry has an equal debit and credit, so the trial balance still agrees afterwards.
Accumulated depreciation is a contra-asset account and normally has a credit balance.
Year-end adjustments don't involve the cash account.
Show the effect on profit as well as the entries; markers often ask for both.

Frequently Asked Questions

Why prepare an adjusted trial balance before the financial statements?

It checks that the books still balance once the year-end adjustments are in, and gives you the final figures for the income statement and statement of financial position.

Academic References & Standards

[1]Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2022). Financial Accounting. John Wiley & Sons. Source Link

Help With Your Own Task

Got a Similar Question for Your Course?

Send it to an Assignment Achievers expert. You'll get an original answer that follows your brief and rubric, the working shown step by step, and a free originality report.