What is the primary purpose of preparing an adjusted trial balance?

• A. To record all cash receipts and cash payments during the period.
• B. To detect errors in the posting of transactions to the ledger accounts.
• C. To ensure that all adjusting entries have been made and account balances are correct before preparing financial statements.
• D. To close all temporary accounts at the end of the accounting period.

Answer: (C)

Verified step by step guidance

1. Understand the concept of an adjusted trial balance: It is a list of all accounts and their balances after adjusting entries have been made. Adjusting entries are necessary to ensure that revenues and expenses are recorded in the correct accounting period.
2. Recognize the primary purpose: The adjusted trial balance is prepared to ensure that all adjusting entries have been made and that the account balances are accurate before financial statements are prepared.
3. Differentiate the adjusted trial balance from other accounting processes: Unlike recording cash receipts/payments or detecting errors in ledger accounts, the adjusted trial balance focuses on verifying the accuracy of account balances after adjustments.
4. Understand its role in the accounting cycle: The adjusted trial balance is a critical step before preparing financial statements, as it ensures that the financial data is complete and accurate.
5. Clarify what it does not do: The adjusted trial balance does not close temporary accounts; closing entries are made after financial statements are prepared.