Calculate net income from adjusted trial balance accounts with this simple calculator. Read through this article to know how you can easily prepare income statement from an adjusted trial balance report for a specific period.
Income
| Income Item | Amount | Action |
|---|---|---|
| Sales | ||
| Discount received | ||
| Purchase return | ||
| Interest on investment | ||
| Dividend received |
Expenses
| Expense Item | Amount | Action |
|---|---|---|
| Salary | ||
| Rent | ||
| Advertisement | ||
| Taxes | ||
| Utility expenses | ||
| Discount allowed | ||
| Export duty | ||
| Interest paid | ||
| Sales transport |
What is an Adjusted Trial Balance?
An adjusted trial balance is a financial document that contains all the accounts and balances of a company after adjusting entries have been made at the end of an accounting period. The adjusted trial balance forms the foundation for creating financial statements, including the income statement, balance sheet, and cash flow statement.
Why Adjusting Entries are Made?
Adjusting journal entries are made in accounting to ensure that all financial statements are accurately reflect the company’s financial position. These entries are essential for correcting any errors. Adjusting entries help in updating account balances and preparing the financial statements in accordance with the accrual basis of accounting.
Here are Some Common Reasons for Making Adjusting Entries
- Accrued Revenues
- Reason: Revenue has been earned but not yet recorded or billed to the customer.
- Example: A service rendered in December but invoiced in January.
- Adjustment: Debit Accounts Receivable, Credit Service Revenue.
- Accrued Expenses
- Reason: Expenses have been incurred but not yet recorded or paid.
- Example: Salaries accrued by employees in December but paid in January.
- Adjustment: Debit the Salaries Expense account and Credit Salaries Payable account.
- Prepaid Expenses
- Reason: Expenses were paid in advance, but part of the benefit has been used during the period.
- Example: Prepaid rent for six months, and one month has been used.
- Adjustment: The Rent Expense is debited and the Prepaid Rent will be credited.
- Unearned Revenues
- Reason: Cash was received in advance for services that are partially or fully performed during the period.
- Example: A customer paid for a one-year subscription, and one month has been provided.
- Adjustment: Debit Unearned Revenue, Credit Revenue.
- Depreciation
- Reason: Allocation of the cost of long-term assets (e.g., equipment, buildings) over their useful life.
- Example: A $12,000 machine with a one-year useful life.
- Adjustment: Depreciation Expense is debited and the Accumulated Depreciation will be credited.
- Inventory Adjustments
- Reason: To adjust for any shrinkage, obsolescence, or errors in inventory count.
- Example: Inventory found to be lower than recorded due to theft.
- Adjustment: Debit Cost of Goods Sold, Credit Inventory.
- Bad Debt Expense
- Reason: To estimate uncollectible accounts receivable based on historical trends or a percentage of sales.
- Example: 2% of credit sales are expected to be uncollectible.
- Adjustment: Debt Expense is debited and the the Allowance for Doubtful Accounts will be credited.
How do you Calculate Net Income From an Adjusted Trial Balance?
To calculate net income from adjusted trial balance you need to find out all the revenues and expenses accounts from the trial balance report after adjustments have been made. Let you have made necessary adjustments to your trial balance. Now dive into calculating the net income.
Sum up the revenue accounts: Locate and sum up the credit balances of all the revenue accounts. Revenue accounts represent the income generated by a business from its primary activities. For example, Sales, service revenue, interest income, dividend Income, rental Income, royalty Income, commission Income, etc.
Sum up the expense accounts: Identify all accounts that represent expenses (e.g., Salary Expense, Rent Expense, Depreciation Expense). Add up all the debit balances in the expense accounts.
Calculate Net Income: Use the formula below to calculate net income from an adjusted trial balance-
Net Income = Total Revenues − Total Expenses
If total revenues exceed total expenses, the outcome is net income.
If total revenues are less than total expenses, the outcome is a net loss.
After calculating the net income you can include it in the balance sheet under owner’s equity section. Alternatively, you can create a separate owner’s equity statement and add up ending capital on the balance sheet.
While you can calculate the net income from an adjusted trial balance but a detailed income statement report is always recommended.
Conclusion
Now that calculating net income from from an adjusted trial balance is so easy, right? By analyzing the revenue and expense accounts listed in the trial balance, businesses can determine the overall profitability for a specific accounting period. Thanks for reading through the article and using our calculators.