Which of the following best describes the primary difference between an unadjusted trial balance and an adjusted trial balance?

• A. An unadjusted trial balance is used for external reporting, while an adjusted trial balance is used only for internal purposes.
• B. An unadjusted trial balance is prepared before adjusting entries are made, while an adjusted trial balance is prepared after all adjusting entries have been recorded.
• C. An unadjusted trial balance includes only revenue accounts, while an adjusted trial balance includes only expense accounts.
• D. An unadjusted trial balance lists accounts in alphabetical order, while an adjusted trial balance lists them by account number.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of a trial balance. A trial balance is a list of all ledger accounts and their balances at a specific point in time. It is used to ensure that total debits equal total credits in the accounting system.
2. Step 2: Differentiate between an unadjusted trial balance and an adjusted trial balance. An unadjusted trial balance is prepared before any adjusting entries are made, while an adjusted trial balance is prepared after all adjusting entries have been recorded to reflect accurate account balances.
3. Step 3: Recognize the purpose of adjusting entries. Adjusting entries are made to account for accrued revenues, accrued expenses, prepaid expenses, depreciation, and other items that ensure the financial statements comply with the accrual basis of accounting.
4. Step 4: Note the differences in usage. The unadjusted trial balance is typically an intermediate step in the accounting process, while the adjusted trial balance is used to prepare accurate financial statements.
5. Step 5: Eliminate incorrect options. For example, the unadjusted trial balance does not list accounts alphabetically, nor does it include only revenue accounts. The adjusted trial balance includes all accounts after adjustments, not just expense accounts.