Post-Closing Trial Balance: Definition, Purpose, and Preparation

All accounts with debit balances are listed on the left column and all accounts with credit balances are listed on the right column. The post-closing trial balance is the last trial balance to be prepared before the next accounting period begins. It is useful for making sure the next period’s beginning balances are accurate. A post-closing trial balance also ensures debits and credits stay balanced after all closing entries are complete.

  1. Another way to find an error is to take the difference between the two totals and divide by nine.
  2. Transferring information from T-accounts to the trial balance requires consideration of the final balance in each account.
  3. The temporary accounts have therefore not been listed in post-closing trial balance.
  4. We do not cover reversing entries in
    this chapter, but you might approach the subject in future
    accounting courses.
  5. A company can follow a step-by-step approach to prepare adjusted trial balance statements.
  6. The post-closing trial balance contains all accounts that are currently recorded in the general ledger.

Adjusted and post-closing trial balances are two stages of preparing a trial balance statement after the initial unadjusted entries. These accounts carry their balances into the next accounting period and are used to prepare the financial statements. Finally, the accountant how to prepare post closing trial balance prepares the post-closing trial balance by listing all accounts with their updated balances after the closing entries have been made. Next, the accountant closes the temporary accounts by transferring their balances to the permanent accounts, such as retained earnings.

Which of the following accounts will have a zero balance after closing entries have been posted?

Since only balance sheet accounts are listed on this trial balance, they are presented in balance sheet order starting with assets, liabilities, and ending with equity. It is worth mentioning that there is one step in the process that a company may or may not include, step 10, reversing entries. Reversing entries reverse an adjusting entry made in a prior period at the start of a new period.

Temporary accounts are reduced during the closing process when closing entries are posted, leaving only permanent accounts displayed on the balance sheet. The post-closing trial balance sheet accounts should show that the total of all the debit accounts balances equals the total of all credit accounts balances, which would then net to zero. The post-closing trial balance is the last step or final step in the accounting cycle, and then the cycle starts all over again for the next accounting period.

What is the purpose of a post-closing trial balance?

It is the third (and last) trial balance prepared in the accounting cycle. Nominal accounts are those that are found in the income statement, and withdrawals. Because you made closing entries for revenue and expenses, those accounts do not appear on the post-closing trial balance. You’ll also notice that the owner’s capital account has a new balance based on the closing entries you made earlier. Thus, the adjusted trial balance is a process to prepare accurate ledger account balances for an accounting cycle. A post-closing trial balance is prepared after the adjusted trial balance.

The Income Summary account would have a credit balance of 1,060 (9,850 credit in the first entry and 8,790 debit in the second). The unadjusted trial balance is the first trial balance that you’ll prepare, and it should be completed after all entries for the accounting period have been completed. The trial balance worksheet contains columns for both income statement and balance sheet entries, allowing you to easily combine multiple entries into a single amount. This makes sure that your beginning balances for the next accounting cycle are accurate.

Remember that closing entries are only used in systems using actual bound books made of paper. In any case, they are an important concept and they officially represent the end of the process. 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. The post-closing trial balance for Printing Plus is shown in

Figure 5.8. If a trial balance is in balance, does this mean that all of the numbers are correct?

It will only include general ledger balance sheet accounts with balances other than zero. The purpose of a post-closing trial balance is to check debits and credits after the closing entries have been made. A post-closing trial balance is created at the end of a reporting period. It is a list of all the balance sheet accounts that do not have a zero balance. Post-closing trial balances are used to verify whether the debit balance total is equal to the credit balance total.

How To Close An Expense Account

Unlike previous trial balances, the retained earnings figure is included, which was obtained through the closing process. Post-closing trial balance – This is prepared after closing entries are made. Its purpose is to test the equality between debits and credits after closing entries are prepared and posted. The post-closing trial balance contains real accounts only since all nominal accounts have already been closed at this stage. Firstly, it ensures that the company’s books are balanced and all temporary accounts have been closed, providing an accurate financial position.

The post-closing trial balance is also used to double-check that the only accounts with balances after the closing entries are permanent accounts. If there are any temporary accounts on this trial balance, you would know that there was an error in the closing process. At the end of a financial period, the accounting department of a company or a certified public accountant records adjusting and closing entries and prepares several trial balances.

Structure of the Post-Closing Trial Balance

The amount of time is contingent on the complexity of the business and the experience of the preparer. Preparing an unadjusted trial balance is the fourth step in the accounting cycle. A trial balance is a list of all accounts in the general ledger that have nonzero balances. A trial balance is an important step in the accounting process, because it helps identify any computational errors throughout the first three steps in the cycle. This is because a correct trial balance statement helps you in preparing basic financial statements including the income statement and the balance sheet.

Simply put, a trial balance adjusted for all accounts is called an adjusted trial balance. If you like quizzes, crossword puzzles, fill-in-the-blank,
matching exercise, and word scrambles to help you learn the
material in this course, go to My
Accounting Course for more. One way to find the error is to take the difference between the two totals and divide the difference by two. One of the most well-known financial schemes is that involving the companies Enron Corporation and Arthur Andersen. Enron defrauded thousands by intentionally inflating revenues that did not exist.

In the accounting cycle, there are two other trial balances that are prepared. This report lists all the accounts that a company has and their balances. The next one is called the adjusted trial balance and is a list of all the company accounts and their balances after any adjustments have been made. So if there are already two other trial balance reports, why would you possibly need another one? In all three types of trial balance, the net balance is zero i.e., all the debit balances equal to all credit balance.

The liabilities are contracted with the assets listed in the left column. Total the liabilities by adding all the values and write the sum at the bottom. These accounts are closed at the end of the period by transferring their balances to the retained earnings account or other permanent accounts, such as the accumulated depreciation account.