The adjusted trial balance (ATB) is the bridge between the client's books and the financial statements the firm issues. It starts with the unadjusted trial balance the client provided, applies each adjusting and reclassifying entry in its own column, and ends with the balances that feed the statements. Every audit, review and compilation that involves adjustments needs one, and most of the arithmetic errors in a file live here.
This guide builds the worksheet column by column, with a worked example and the checks to run before anyone signs off. For the concept of the three trial balances, see trial balance: unadjusted, adjusted and post-closing. For the entries themselves, see adjusting journal entries in an audit. A ready-made layout is in the trial balance template.
What goes in the worksheet?
| Column | Contents |
|---|---|
| Account number and name | From the client's chart of accounts |
| FS line / lead schedule reference | Where the account lands in the statements and which lead schedule supports it |
| Prior-year final | The prior year's final balances, agreed to the prior-year issued statements |
| Unadjusted trial balance (UTB) | Client's year-end balances before any firm adjustments |
| AJE | Adjusting journal entries the client has agreed to record |
| RJE | Reclassification entries that move amounts between lines without changing income |
| Adjusted trial balance (ATB) | UTB plus AJEs plus RJEs |
| Passed adjustments (memo) | Uncorrected misstatements, shown beside the ATB but not in it |
Use one signed column per entry type. Debits are positive and credits are negative, so each column sums to zero and ATB = UTB + AJE + RJE for every row. A column that does not sum to zero has a one-sided entry.
Step-by-step: building and rolling the worksheet
- Obtain the trial balance from the system, not a retyped copy. For a QuickBooks Online client, export the trial balance as of the period end from the reports menu and record the date and time of export. See auditing a client on QuickBooks Online.
- Foot it. The debit and credit totals must agree. If the export includes sub-accounts and parent accounts, make sure parent totals are not double counted.
- Agree opening balances. Equity and balance sheet accounts at the start of the year should agree to the prior-year final balances. Differences point to changes after the prior-year statements were issued. See first-year audits and opening balances.
- Map each account to a financial statement line and a lead schedule. See lead schedule in an audit.
- Enter adjustments one at a time. Each entry gets a number (AJE 1, AJE 2, RJE 1), a description and a reference to the workpaper that supports it. Keep entries balanced individually, not only in total.
- Compute the ATB with a formula that sums across the row, then foot the ATB column.
- Prepare the statements from the ATB. The balance sheet and income statement amounts should equal the sum of the mapped ATB rows. Compare net income on the ATB with net income on the draft statements.
- Update after every change. An entry added at wrap-up requires updating the ATB, the lead schedule, the statements and the summary of uncorrected misstatements.
Worked example
Illustrative numbers for a small distributor. Debits are positive, credits negative.
Adjustments proposed during the audit:
- AJE 1: accrue $18,000 of wages earned but unpaid at year-end. Debit salaries expense, credit accrued liabilities.
- AJE 2: record a $12,000 allowance for credit losses. Debit bad debt expense, credit allowance.
- AJE 3: record $25,000 of inventory received before year-end and counted, but with the vendor invoice unrecorded. Debit inventory, credit accounts payable.
- RJE 1: reclassify $8,000 of customer credit balances out of accounts receivable. Debit accounts receivable, credit customer credit balances (a liability).
| Account | UTB | AJE | RJE | ATB |
|---|---|---|---|---|
| Cash | 120,000 | 120,000 | ||
| Accounts receivable | 310,000 | 8,000 | 318,000 | |
| Allowance for credit losses | 0 | (12,000) | (12,000) | |
| Inventory | 200,000 | 25,000 | 225,000 | |
| Prepaid expenses | 15,000 | 15,000 | ||
| Equipment, net | 180,000 | 180,000 | ||
| Accounts payable | (140,000) | (25,000) | (165,000) | |
| Accrued liabilities | (25,000) | (18,000) | (43,000) | |
| Customer credit balances | 0 | (8,000) | (8,000) | |
| Notes payable | (200,000) | (200,000) | ||
| Common stock | (100,000) | (100,000) | ||
| Retained earnings, beginning | (150,000) | (150,000) | ||
| Revenue | (1,500,000) | (1,500,000) | ||
| Cost of goods sold | 900,000 | 900,000 | ||
| Salaries expense | 300,000 | 18,000 | 318,000 | |
| Rent and other expense | 90,000 | 90,000 | ||
| Bad debt expense | 0 | 12,000 | 12,000 | |
| Total | 0 | 0 | 0 | 0 |
Checks.
- AJE column: debits 25,000 + 18,000 + 12,000 = 55,000; credits 12,000 + 25,000 + 18,000 = 55,000. It sums to zero.
- ATB total debits: 120,000 + 318,000 + 225,000 + 15,000 + 180,000 + 900,000 + 318,000 + 90,000 + 12,000 = 2,178,000. Total credits: 12,000 + 165,000 + 43,000 + 8,000 + 200,000 + 100,000 + 150,000 + 1,500,000 = 2,178,000. They agree.
- Net income before adjustments: 1,500,000 - (900,000 + 300,000 + 90,000) = 210,000. After: 1,500,000 - (900,000 + 318,000 + 90,000 + 12,000) = 180,000. The change of 30,000 equals AJE 1 plus AJE 2 (18,000 + 12,000). The reclassification and the inventory entry did not affect income.
- Balance sheet: assets 120,000 + 318,000 - 12,000 + 225,000 + 15,000 + 180,000 = 846,000. Liabilities 165,000 + 43,000 + 8,000 + 200,000 = 416,000. Equity 100,000 + 150,000 + 180,000 net income = 430,000. Liabilities plus equity: 846,000. It ties.
The client's accounting staff should record the AJEs in the ledger. If they do not, the ATB exists only in the working paper and next year's opening balances will be wrong. See management's role in recording adjustments before the firm posts entries itself.
Passed adjustments
Misstatements the client declines to correct stay off the ATB. List them in a separate memo column or on the summary of uncorrected misstatements, then evaluate them in total against materiality under AU-C 450. The ATB shows what the client recorded plus what was agreed to be recorded. If passed items are material in total, the statements are not ready to be issued.
Variations by engagement type
- Audit: the ATB supports the financial statements and the audit opinion. It should be locked at the report date, and every change after that should be explained.
- Review: adjustments result from analytical procedures and inquiries. The worksheet is the same.
- Compilation or preparation: the accountant may propose entries to produce the statements. Under AR-C 80 and AR-C 70 the entries and the worksheet are still documentation of what was done.
Common mistakes
- Typing balances from a printout instead of exporting them.
- Entries that do not balance individually but offset each other in the column total.
- An ATB that no longer agrees with the lead schedules after a late entry.
- Reclassifications mixed into the AJE column, which overstates the effect of adjustments on income.
- Tax provision entries added late without updating the pretax figures used for materiality.
Frequently asked questions
What is an adjusted trial balance?
The unadjusted trial balance with all adjusting and reclassification entries applied, used to prepare the financial statements.
What is the difference between AJE and RJE columns?
AJEs correct amounts and change income or equity. RJEs move amounts between line items, such as customer credit balances out of receivables, without changing net income.
Should passed adjustments be in the ATB?
No. They are tracked separately and evaluated in total against materiality.
Who posts the audit adjustments?
Management should record them in its books. If the firm drafts and posts entries, it needs to evaluate independence under the AICPA nonattest services rules.
How do I know the ATB is correct?
It foots, each adjustment column sums to zero, balance sheet and income statement totals tie to the draft statements, and every entry has support.
Sources
- AICPA, AU-C Section 450, Evaluation of Misstatements Identified During the Audit
- AICPA, AU-C Section 230, Audit Documentation
- AICPA, Code of Professional Conduct, ET 1.295, Nonattest Services
- Intuit, QuickBooks Online Help, Run reports (trial balance), quickbooks.intuit.com/learn-support
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AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error