Post Closing Trial Balance Explanation and Example

The difference between the unadjusted trial balance and the adjusted trial balance is the adjusting entries that are required to align the company accounts for the matching principle. A post-closing trial balance is a financial report prepared at the end of an accounting period to ensure that all temporary accounts have been closed and the company’s books are balanced. We can observe the difference between the adjusted trial balance and the post-closing trial balance. All the temporary accounts like revenue and expense accounts have been closed out into the retained earnings account via the income summary account (as previously explained). A post-closing trial balance will be formatted the same as the other two types of trial balances that have already been discussed. Like an unadjusted or an adjusted trial balance, it will have accounts listed in order of either their account numbers or in the order they appear on the balance sheet.

Temporary account balances are transferred to an intermediary account, often called the income summary account. For instance, if a company has $100,000 in revenue, this amount is debited from the revenue account and credited to the income summary account. The purpose of an adjusted trial balance is to ensure that all accounts are up to date and to check the accuracy of the accounting records before preparing the financial statements.

A post-closing trial balance is a listing of all balance sheet accounts containing non-zero balances at the end of a reporting period. The post-closing trial balance is used to verify that the total of all debit balances equals the total of all credit balances, which should net to zero. The post-closing trial balance contains all accounts that are currently recorded in the general ledger. The balances for each account are added together to show that the debit and credit balance is equal.

How Do You Prepare the After-closing Trial Balance?

A list of all accounts and their balances after adjustments have been made but before closing entries. All the financial transactions that occurred during the period need to be recorded in the account ledger-based nature and by respecting accounting principles as well as accounting standards that the entity is using. Now that we have completed the accounting cycle, let’s take alook at another way the adjusted trial balance assists users ofinformation with financial decision-making. Since the team has likely already prepared and finalized the adjusted trial balance, the closing process is the only place for error.

• The difference between the unadjusted trial balance and the adjusted trial balance is the adjusting entries that are required to align the company accounts for the matching principle.
• Temporary account balances are transferred to an intermediary account, often called the income summary account.
• Total the liabilities by adding all the values and write the sum at the bottom.
• Once we are satisfied that everything is balanced, we carry the balances forward to the new blank pages of the next (now current) year’s ledger and are ready to start posting transactions.
• You will notunderstand how your decisions can affect the outcome of yourcompany.
• This ensures the income statement reflects only the revenues and expenses of the current period, providing an accurate view of profitability.
• Income Summary is then closed to the capital account as shown in the third closing entry.

When Should You Prepare the Post-Closing Trial Balance?

It provides the openings balances for the ledger accounts of the new accounting period. Adjusted trial balance – This is prepared after adjusting entries are made and posted. Its purpose is to test the equality between debits and credits after adjusting entries are prepared. Accountants who do not use an accounting software program typically use a trial balance worksheet which is used to calculate all the account totals.

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At the bottom of the debit balance and credit balance columns will be a total for each. When accounting software is used, the totals should always be identical. Accounts that track financial results for a limited period, such as revenues, expenses, and dividends, which are closed at the end of each accounting period.

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Once all closing entries are complete, the information is transferred to the general ledger and the post-closing trial balance is complete. The next step in the accounting cycle is to prepare the reversing entries for the beginning of the next accounting period. Accounting software requires that all journal entries balance before it allows them to be posted to the general ledger, so it is essentially impossible to have an unbalanced trial balance. Thus, the post-closing trial balance is only useful if the accountant is manually preparing accounting information.

What is the difference between a trial balance and a post closing trial balance?

A post-closing trial balance is a financial statement that lists all the permanent accounts and their balances after closing entries have been made. It ensures that total debits equal total credits after post closing trial balance the closing process. This trial balance includes only balance sheet accounts, such as assets, liabilities, and equity, because all temporary accounts like revenues, expenses, and dividends have been closed to retained earnings. Essentially, it resembles a balance sheet and serves as the starting point for the next accounting period.

This process resets the income statement, ensuring it reflects only the revenues and expenses of the current period. Closing entries are a fundamental aspect of the accounting cycle, transitioning financial records from one period to the next. They reset temporary accounts, enabling accurate tracking of financial performance over time. Understanding closing entries is critical for maintaining precise financial statements, preparing businesses for new accounting periods, and ensuring compliance with standard accounting practices. It provides a snapshot of the company’s financial position at the end of the accounting period after all temporary accounts have been closed and their balances have been transferred to permanent accounts.

• Closing entries reshape financial statements by transitioning temporary account balances.
• We also have an accompanying spreadsheet that shows you an example of each step.
• It will only include balance sheet accounts, a.k.a. real or permanent accounts.
• The post-closing trial balance report lists down all the individual accounts after accounting for the closing entries.
• In the next accounting period, the accounting cycle will be repeated again starting from the preparation of journal entries i.e. the first step of accounting cycle.
• The primary purpose of closing entries is to clear out temporary account balances.

A trial balance is prepared during the accounting period, usually at the end of each month, quarter, or year. It is a list of all the general ledger accounts and their balances, including both debit and credit balances. As you can see, the accounts are generally listed in balance sheet order starting with the assets followed by the liabilities and then equity accounts.

In areal company, most of the mundane work is done by computers.Accounting software can perform such tasks as posting the journalentries recorded, preparing trial balances, and preparing financialstatements. Students often ask why they need to do all of thesesteps by hand in their introductory class, particularly if they arenever going to be an accountant. If you havenever followed the full process from beginning to end, you willnever understand how one of your decisions can impact the finalnumbers that appear on your financial statements. You will notunderstand how your decisions can affect the outcome of yourcompany.