The unadjusted trial balance is drawn straight from the ledger after routine transactions are posted. The adjusted trial balance is the same report after adjusting entries — the period-end corrections accrual accounting requires. Financial statements are prepared only from the adjusted version.
What the adjustments add
| Adjustment | Example |
|---|---|
| Accrued expenses | Wages earned since the last payday (Accrued Liabilities) |
| Accrued revenue | Work delivered, not yet invoiced |
| Deferrals consumed | One month of prepaid insurance expensed (Deferred Expenses) |
| Depreciation | The period’s charge on fixed assets |
| Unearned revenue earned | Delivered portion of advance payments |
A small example of the difference
Unadjusted, a firm shows $80,000 revenue and $55,000 expenses. Adjustments accrue $4,000 of unpaid wages, expense $1,000 of prepaid insurance and add $2,000 of depreciation. Adjusted: revenue $80,000, expenses $62,000 — profit drops from $25,000 to $18,000. Nothing was miscounted originally; the unadjusted books simply had not yet recognized costs the period had genuinely consumed. Skipping adjustments overstates profit — quietly, and every single period in the same direction.
Where each fits in the cycle
Post transactions → unadjusted Trial Balance → adjusting entries → adjusted trial balance → financial statements → closing entries → post-closing trial balance. Three snapshots of the same ledger, each one gate in the period-end process.
Why not adjust transactions as they happen?
Accruals and depreciation are period-based, not transaction-based — there is no event to record until the period boundary defines what has been consumed or earned.
Which trial balance feeds the financial statements?
The adjusted one — statements built from unadjusted balances misstate profit and the balance sheet.
Do both trial balances have to balance?
Yes — adjusting entries are themselves balanced debits and credits, so balance is preserved at every stage.