Which of the following best describes the purpose of an adjusted trial balance for Sierra Company?

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

Answer: (B)

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. Its purpose is to ensure that the ledger accounts are balanced and ready for financial statement preparation.
2. Clarify the role of adjusting entries: Adjusting entries are made to update account balances for accruals, deferrals, depreciation, and other necessary adjustments to reflect the true financial position of the company.
3. Recognize the purpose of the adjusted trial balance: The adjusted trial balance is used to verify that total debits equal total credits after adjustments. This ensures the accuracy of the accounts before preparing financial statements.
4. Eliminate incorrect options: The adjusted trial balance does not record cash transactions, list only adjusted accounts, or directly prepare the statement of cash flows. These are not its primary functions.
5. Select the correct purpose: The correct purpose of the adjusted trial balance is to verify that total debits equal total credits after all adjusting entries have been made, ensuring the accounts are balanced and ready for financial statement preparation.