Which of the following best describes the purpose of an adjusted trial balance for Molly Distributors as of December 31?

• A. To list only the accounts that have been closed for the period.
• B. To record all cash transactions for the period.
• C. To verify that total debits equal total credits after all adjusting entries have been made.
• D. To prepare the statement of cash flows directly.

Answer: (C)

Verified step by step guidance

1. Understand the concept of an adjusted trial balance: An adjusted trial balance is prepared after all adjusting entries have been made at the end of an accounting period. It ensures that the ledger accounts are updated and ready for financial statement preparation.
2. Clarify the purpose of the adjusted trial balance: The primary purpose is to verify that total debits equal total credits after adjustments, ensuring the accounting equation remains balanced.
3. Eliminate incorrect options: Review each option provided in the problem. For example, 'To list only the accounts that have been closed for the period' is incorrect because the adjusted trial balance includes all accounts, not just closed ones.
4. Evaluate the correct option: The correct answer is 'To verify that total debits equal total credits after all adjusting entries have been made.' This aligns with the purpose of the adjusted trial balance in financial accounting.
5. Connect the adjusted trial balance to financial statement preparation: Once the adjusted trial balance is verified, it serves as the basis for preparing financial statements such as the income statement, balance sheet, and statement of cash flows.