What is the relationship between the amounts on the adjusted trial balance for an account and its ledger?

Why is it necessary to prepare the formal financial statements if all the data are on the adjusted trial balance?

I am having problems finding the answer to thsee two question in my text book, so can someone help me out here.Thank you.

The relationship between the amounts on the adjusted trial balance for an account and its ledger is that the adjusted trial balance summarizes the balances of all the accounts in the general ledger after adjusting entries have been made. In other words, it provides an overview of the account balances after necessary adjustments have been made for items such as accruals, deferrals, depreciation, etc.

To understand this relationship, it is important to know that the ledger is the main accounting record where all transactions are initially recorded. It consists of individual accounts such as cash, accounts receivable, accounts payable, revenue, expenses, etc. Each account in the ledger contains a running balance of all the debits and credits related to that account.

After the end of an accounting period, adjusting entries are made to update certain account balances in the ledger based on accrual accounting principles. These adjustments are necessary to ensure that revenues and expenses are recognized in the appropriate period, and that the financial statements accurately reflect the financial position and performance of the business.

Once these adjustments have been made in the ledger, the adjusted balances of each account are then summarized in the adjusted trial balance. The adjusted trial balance acts as a double-check to ensure that the total debits equal the total credits in the ledger and that all the adjustments have been correctly made.

Now, moving on to the second question - why is it necessary to prepare the formal financial statements if all the data are on the adjusted trial balance?

While the adjusted trial balance provides a summarized view of the account balances, it does not present the information in a structured and understandable manner for external users such as investors, lenders, and regulators. The formal financial statements, on the other hand, present the financial information in a standardized format and provide a clearer picture of the company's financial performance and position.

Financial statements, such as the income statement, balance sheet, and cash flow statement, are prepared based on the adjusted trial balance to provide important financial information to external users. These statements help stakeholders evaluate a company's profitability, liquidity, solvency, and overall financial health.

Moreover, preparing formal financial statements also helps in complying with regulatory requirements and accounting standards. It ensures that the financial information is presented in a consistent and reliable manner, which enables comparability among different companies and periods.

In summary, the adjusted trial balance summarizes the account balances after adjusting entries, while the formal financial statements use the adjusted trial balance data and present the financial information in a structured format for external users. Both are important in accounting to ensure accurate and informative reporting of a company's financial performance and position.