Definition
An adjusted trial balance shows account balances after adjusting journal entries are posted to the unadjusted trial balance. Adjustments cover accruals, prepaid and deferred items, depreciation, estimates, and corrections proposed by the auditor and accepted by management. Many firms present columns: unadjusted, adjustments, adjusted.
Why it matters in an audit or review
The adjusted trial balance is what the financial statements should agree to. The auditor tracks proposed audit adjustments, separates booked from passed entries, and accumulates passed misstatements on a summary of uncorrected misstatements for comparison with materiality. If management posts entries after the auditor issues a draft, the tie-out must be repeated.
Example
(Illustrative) Unadjusted pre-tax income is $320,000. Adjustments: accrue $18,000 of unpaid bonuses, reduce prepaid insurance by $4,000, and record $9,000 of depreciation. Total adjustments are 18,000 + 4,000 + 9,000 = $31,000, so adjusted pre-tax income is $320,000 - 31,000 = $289,000.
Dr Bonus expense 18,000 Cr Accrued bonuses 18,000
Common mistakes
- Posting audit adjustments in the client's system but not in the audit file.
- Forgetting the related tax effect of adjustments.
FAQ
Who posts audit adjustments?
Management. The auditor proposes them, and management decides whether to record them.
Sources
- AICPA, AU-C Section 450, Evaluation of Misstatements Identified During the Audit
- AICPA, AU-C Section 320, Materiality in Planning and Performing an Audit
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error