What is a Post Closing Trial Balance? Definition Meaning Example

By closing temporary accounts and zeroing out their balances, the accounting department can start fresh with accurate account balances for the next accounting period. A post-closing trial balance is the final trial balance prepared before the new accounting period begins. Used to make sure that beginning balances are correct, the post-closing trial balance is also used to ensure that debits and credits remain in balance after closing entries have been completed. The post-closing trial balance sheet does not include information about revenues, losses, or a summary account balance. Instead, any of those items that emerge following the completion of the closing process and the calculation of the post-closing trial balance will be transferred to the succeeding accounting period. Now that the post closing trial balance is prepared and checked for errors, Paul can start recording any necessary reversing entries before the start of the next accounting period.

Recording of those transactions should follow the role of debt and credit. As you can see, the accountant or bookkeeper first needs to analyze the business transactions and then make the journal entries. Instead, they are accounting department documents that are not distributed. The accounting process is complex and intricate, requiring careful attention and accuracy. One crucial aspect of this process is understanding and managing trial balances. Before you can run a post-closing trial balance, you’ll have to make sure that all of your adjusting journal entries have been entered.

Adjusted Trial Balance Vs Post-Closing Trial Balance: Similarities and Differences

The unadjusted trial balance helps identify any discrepancies or errors in the ledger accounts and ensures that the total debit and credit balances are equal. The adjusted trial balance is generated after the adjusting entries have been recorded. These entries include month end adjustments and other necessary changes to the account balances. The adjusted trial balance ensures that the financial statements are accurate and comply with the Generally Accepted Accounting Principles (GAAP).

• The purpose of a post-closing trial balance is to ensure that all the individual account balances match the debit and credit columns.
• This process resets the temporary accounts to zero and prepares them for the next accounting period.
• 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.
• As previously stated, it accomplishes this by shifting revenue and expenses to the retained earnings account.
• These reports can be used as supporting documentation during audits and provide a clear picture of the company’s financial health at the end of each accounting period.
• Once they are, you are prepared for the start of the new accounting period.

After closing entries have been made, the post closing trial balance can be prepared. The process involves listing the account number, account title, and account description for each balance sheet account. Debit balances are recorded in the debit column, while credit balances are recorded in the credit column. The account balances should be obtained from the general ledger after posting the closing entries. At the bottom of the post-closing trial balance, in order of assets, liabilities, and equity, will be the total of all the debits and credits.

Why is a post closing trial balance performed?

Closing temporary accounts is an important step in the accounting cycle, and running the post-closing trial balance helps to make sure that the process has been completed accurately. 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. The post-closing trial balance will include assets, liabilities, and equity accounts that are permanent and have a non-zero balance at the closing date of an accounting period.

• The next step in the accounting cycle is to prepare the reversing entries for the beginning of the next accounting period.
• The order that will follow will be assets first, then liabilities and finally ending off with equity.
• These are temporary accounts that the company has already closed; the balances in these accounts have already been transferred to the retained earnings account throughout the account closing process.
• To prepare a post-closing trial balance, the accountant or bookkeeper starts with a trial balance that lists all accounts with their debit or credit balances.
• Many students who enroll in an introductory accounting course do not plan to become accountants.
• As a result, this balance contains no revenue, expense, gain, loss, or summary account balances.

Once we get the adjusted trial balance, we then prepare the financial statements and all the suspended accounts need to be closed. When the accountant reviews the ledger and unadjusted trial balance, some adjustments may require. Once the adjustments are completed, we then get the adjusted trial balance. These journal entries are then posted into individual accounting ledgers in general ledgers.

Unadjusted trial balance

Overall, the post-closing trial balance is an essential part of the accounting process that ensures the accuracy and completeness of a company’s financial records. On the other hand, permanent accounts, also known as real accounts, include assets, liabilities, and equity accounts. These accounts are not closed at the end of the accounting period, and their balances carry over to the next accounting period.

When accounting software is used, the totals should always be identical. Liabilities include things like loans, mortgages, accounts payable, accrued expenses, warranties, bonds, and more. 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.

The post-closing trial balance, on the other hand, changes this account. As previously stated, it accomplishes this by shifting revenue and expenses to the retained earnings account. The post-closing trial balance also closes dividend accounts, which affects retained earnings. If any revenue, expense, gain, loss, or summary account balances appear in the trial balance after the closing process, it is because they what is the purpose of the post-closing trial balance are related to the following accounting period. In other words, a post-closing trial balance only includes permanent accounts, such as assets, liabilities, and equity accounts, which are not closed at the end of the accounting period. The post-closing trial balance is an important tool for verifying the accuracy of the financial statements, as well as for preparing future financial reports and tax filings.