Adjusted Trial Balance

An Adjusted Trial Balance is a list of the balances of ledger accounts which is created after the preparation of adjusting
entries. Adjusted trial balance contains balances of revenues and expenses along with those of assets, liabilities and
equities. Adjusted trial balance can be used directly in the preparation of the statement of changes in stockholders' equity,
income statement and the balance sheet. However it does not provide enough information for the preparation of the
statement of cash flows.
The format of an adjusted trial balance is same as that of unadjusted trial balance.

Example

The following adjusted trial balance was prepared after posting the adjusting entries of Company A to its general ledger
and calculating new account balances:
Company A
Adjusted Trial Balance
January 31, 2010

Debit Credit
Cash $20,430
Accounts Receivable 5,900
Office Supplies 4,320
Prepaid Rent 24,000
Equipment 80,000
Accumulated Depreciation $1,100
Accounts Payable 5,200
Utilities Payable 3,964
Unearned Revenue 1,000
Interest Payable 150
Notes Payable 20,000
Common Stock 100,000
Service Revenue 85,600
Wages Expense 38,200
Supplies Expense 18,480
Rent Expense 12,000
Miscellaneous Expense 3,470
Electricity Expense 2,470
Telephone Expense 1,494
Depreciation Expense 1,100
Interest Expense 150
Dividend 5,000
Total $217,014 $217,014

The totals of an adjusted trial balance must be equal. Any difference indicates that there is some error in the journal
entries or in the ledger or in the calculations.

Final Accounts of a Company:

Trading and P&L A/c and Balance sheet are prepared at the end of the year or at end of the part.So it is called Final
Account.
1. Trading and Profit and Loss A/c is prepared to find out Profit or Loss.
2. Balance Sheet is prepared to find out financial position a if concern.
Revenue account of trading concern is divided into two-part i.e.
1. Trading Account and
2. Profit and Loss Account.

Balance sheet :
The Word Balance Sheet is defined as a Statement which sets out the Assets and Liabilities of a business firm and
which serves to ascertain the financial position of the same on any particular date
On the left hand side of this statement, the liabilities and capital are shown. On the right handside, all the assets are
shown. Therefore the two sides of the Balance sheet must always be equal.Capital arrives Assets exceeds the liabilities.
Objectives of balance sheet:
1. It shows accurate financial position of a firm.
2. It is a gist of various transactions at a given period.
3. It clearly indicates, whether the firm has sufficient assents to repay its liabilities.
4. The accuracy of final accounts is verified by this statement
5. It shows the profit or Loss arrived through Profit & Loss A/c
Major headings of the assets and liabilities-side of a companys balances sheet as per Schedule VI,
Part I.
Major headings of Assets side
i.Fixed Assets
ii.Investments
iii.Current Assets, Loans and Advances: Current Assets, Loans and Advances
iv.Miscellaneous Expenditures
v.Profit & Loss Account (Loss in Business)

Major headings of Liabilities side

i.Share Capital
ii.Reserves and Surplus
iii.Secured Loans
iv.Unsecured Loans
v.Current Liabilities and Provisions
a. Current Liabilities
b. Provisions

What is contingent liability?

A possible future liability, which depends on the happenings of certain uncertain event, is calledcontingent liability. These
liabilities are not shown in the total of liability side, but are shown as a footnote to the balance sheet.

The following are some examples of contingent liabilities: -

i.Uncalled liabilities on partly paid shares
ii.Liabilities under Guarantee
iii.Arrears of dividends on cumulative preference shares
iv.Claim against the company now acknowledged as debts
v.Liabilities on Bills Receivable discounted but not matured

Differences between Reserve and Provision:

The term provision means to set aside some amount for future liability. Look the other term Reserve, which refers to
withholding some amount for any use in future. Due to lack of full knowledge, people use them in one breath which is
incorrect. The Provision does not equal to Reserve that is why their accounting treatment is also different. So, because of
this confusion we are here with a new topic which is based on the significant differences between Provision and Reserve.

The following are the main differences between reserve and provision:

1. Mode of Creation
Reserve is created against the charge of the profit and loss appropriation account. Provision is created against the charge
of the profit and loss account.

2. Objective
Main objective of reserve is to strengthen the financial position and to meet future unknown losses and liabilities.
Objective of provision is to meet known losses and liabilities the amount of which is not certain.

3. Accounting Treatment
Reserve is shown on debit side of profit and loss appropriation account and liabilities side of balance sheet. Provision is
shown on debit side of profit and loss account and assets side of balance sheet as deduction from the concerned asset.

4. Relation with Profit

Reserve is created when there is enough profit in the business. Provision is created even if there is loss in the business.

5. Distribution
Reserve can be distributed to shareholders as dividend. Provision can not be distributed as dividend to shareholders.

6. Future Requirement:Reserve is created without considering the future requirement of the business. Provision is
created by estimating the future requirement of the business.

7. Impact: Impact of reserve will be on financial position. Impact of provision will be on profit or loss of the business.

Definition of Provision
The Provision means to keep aside a particular sum of money to cover up an anticipated liability which arises from the
past events. It is a recognition of an expected obligation, which will result in the outflow of cash from the business. The
amount of the liability should be easily estimated by the entity to provide for it.
The recognition is to be made to provide for a known liability or decrease in the value of assets over time or a disputed
claim whose probability of occurrence is maximum.

If a provision is made in excess of the amount what is required, then after paying off the liability, it needs to be written
back to the profit and loss account.

Examples:
Provision for Bad Debts
Provision for Depreciation
Provision for Tax
Definition of Reserves:

The Reserve is a fraction of retained earnings, which is kept aside for any use in future. It is regarded as a part of
shareholders fund. The sum appropriated in the name of reserves can be used for any of the given purposes:

For purchasing an asset in future.

To pay the dividends to shareholder consistently year by year.
For meeting out unexpected contingencies.

The reserves are mainly divided into following categories:

1. Capital Reserve
2. Revenue Reserve
o General Reserve
o Specific Reserve

Many accounting and business experts are of the view that it is always considered good to save some money for an
uncertain future. That is why companies create reserves for conserving money to meet out the future losses.

Key Differences Between Provision and Reserve

The major differences between Provision and Reserve are as under:

1. The Provision means to keep some money for a known liability which is probable to arise after a certain time. The
Reserve is to retain some money from the profit to for any particular future use.
2. The amount of provision cannot be used to pay off dividends, but the amount of the reserves can be used for so.
3. The creation of a provision is compulsory against the anticipated liability. Conversely, the creation of reserves is
voluntary except in the case of Capital Redemption Reserve (CRR), and Debenture Redemption Reserve (DRR).
4. The use of provision is specific, i.e. it must be used for which it is created. On the other hand, reserves can be used
otherwise.
5. Provisions are deducted from the concerned asset when it is created against an asset while shown as a liability on the
balance sheet when it is created against liability. As opposed to Reserves, which are shown on the liabilities side.
6. It is immaterial for the creation of provision, whether the company earned the profit or not whereas the company must
earn the profit for the creation of reserves.

Conclusion

Provision and Reserves both decreases the profit, but the creation of provision is a must to cope up with the known future
expense. Liabilities must be recognized as and when they arise, and that is why provisions are made for the same.
Reserves are a little different; they are created to preserve some money for bad days because nobody knows what will
happen in future, and so experts are in favor of creating reserves.

Balance Sheet Vs Profit and Loss Account

Definition of Balance Sheet

A Balance Sheet is a statement that shows the financial position of the entity at a given date. As you have seen
that on the top of the Balance Sheet there is, as at written which mentions the particular date at which it is
prepared. It has two broad heads which are to be tallied.

They are (1) Assets and (2) Equity and Liabilities.

On the asset side, it displays the firms current and non-current assets. Current assets are those assets which can be
converted into cash within one year and includes cash in hand, stock, debtors, bills receivables, cash at bank, marketable
securities, etc. Non current assets have two parts: Tangible and Intangible assets. Tangible assets are the physical
assets of the company like machinery, building, furniture, land, vehicles, etc. Intangible assets are the non-physical assets
of the company i.e. patents, trademark, goodwill, etc.

On the equity and liabilities side, it displays the shareholders fund, current and non-current liabilities. Shareholders fund
includes the shareholders equity and reserves and surplus. Current liabilities are those liabilities which are to be paid
within 1 year and includes creditors, bills payable, short term loan, etc. Non current liabilities are those liabilities which
are to be paid after a period and includes long-term borrowings, bonds, etc.
Definition of Profit and Loss Account

Profit and Loss Account also known as an income statement or statement of revenue and expenses. The account
represents the financial performance of the entity in a particular period.

First of all the net sales (sales sales return) is recorded after that the cost of goods sold is deducted, and the result is
the gross profit of the entity. Now from this gross profit the office and administration (rent, insurance, printing, and
stationery, etc.), selling and distribution (carriage outwards, bad debts, etc.) expenses are reduced which amounts to
operating profit.

After arriving at operating profit operating income (rent received, profit from the sale of assets, etc.) are added to it while
the operating expenses (interest on loan, loss on sale of assets) are lessened from it which results in the net profit or loss.
If the income exceeds expenses it represents net profit while the expenses exceed income it represents a loss.

Key Differences between Balance Sheet and Profit & Loss Account

1. The Balance Sheet is prepared at a particular date, usually the end of the financial year while the Profit and Loss
account is prepared for a particular period.
2. The Balance Sheet reveals the entitys financial position, whereas the Profit & Loss account discloses the entitys
financial performance, i.e. profit earned or loss suffered by the business for the accounting period.
3. Balance Sheet is a statement of assets and liabilities. In contrast, Profit & Loss Account is an account.
4. A Balance Sheet is a gives an overview of assets, equity, and liabilities of the company, but the Profit and Loss
account is a depiction of entitys revenue and expenses.
5. Accounts which are transferred to profit and loss account are closed and lose their identity. On the contrary, those
accounts which are transferred to Balance sheet do not cease to exist rather their balance is carried forward to
the next accounting year and considered as opening balances.
6. The Balance sheet is prepared on the basis of the balances transferred from the Profit and Loss account.

Conclusion

The Balance Sheet and Profit & Loss Account has its significance. A Balance Sheet enables the reader of the financial
statement to clearly understand the entitys financial stability, liquidity, and solvency. The Profit and Loss Account is
helpful in comparison of the performance of the company. The two terms consist items of different nature, and that is why
the chances of getting confused between them are very less.