Explain why the extended trial balance is used to make adjustments to accounts
The extended trial balance works in very much the same way as the trial balance except that there are a few adjustments to make after which you can then separate out the entries that belong to the balance sheet and which belong to the income statement.
The extended trial balance is used for making adjustments to the accounts at the end of an accounting period. The reason for this is because of the matching principle of accounting, where revenues are matched with expenses in the accounting period in which they were incurred; adjusting entries need to be made. These adjusting entries account for such things as expenses that have been incurred but not yet paid, revenues that have been earned but not yet recorded, and depreciation on equipment.
Using the extended trial balance also ensures that the full double entry method is used correctly to each adjustment without having the wait for the adjustments to be written into the ledger
Example of extended
The picture shows that company have made a profit of $3,500 and also the document is ready for the end of the accounting period. However, if the columns above did not equal, the company would have to look to see what error has been made.
In the picture you can see extended trial balance with the adjustments and extended figures made and the totals of the columns show to agree. If you are an accountant and you will be using this extended trial balance, you will be able to calculate whether the company has made profit or a loss.
From this picture, you can also see that the accountant set up extended trial balance and added the adjustments which included salaries expenses, accounts receivable and revenue. When the adjustments were made the total for each pair of columns (debit and credit) should equal each other which have shown to be true in the table.