Your stockholders, creditors, and other outside professionals will use your financial statements to evaluate your performance. If you evaluate your numbers as often as monthly, you will be able to identify your strengths and weaknesses before any outsiders see them and make any necessary changes to your plan in the following month. This version contains the ending balances of all accounts in the general ledger, before any adjustments have been made to them with adjusting entries. This is the initial version that an accountant uses when preparing to close the books at the end of the month.
- The word “post” in this instance means “after.” You are preparing a trial balance after the closing entries are complete.
- Post-closing trial balance – This is prepared after closing entries are made.
- For this reason, most procedures for closing the books do not include a step for printing and reviewing the post-closing trial balance.
- If the transaction affects the increase of assets, then it should be debited.
- A post-closing trial balance is a trial balance taken after the closing entries have been posted.
All businesses have adjusting entries that they’ll need to make before closing the accounting period. These adjusting entries include depreciation expenses, prepaid expenses, insurance expenses, and accumulated depreciation. Once your adjusting entries have been made, you’re ready to run your adjusted trial balance. The unadjusted trial balance is your first look at your debit and credit balances. An adjusted trial balance is prepared after adjusting entries are made at the end of an accounting period. Adjusting entries are made to record any transactions that occurred but were not recorded during the period or correct any accounting records errors.
Post-Closing Trial Balance Example
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. This trial balance is prepared at the end of each accounting period and forwarded to the opening balance of the next period. Unlikeprevious trial balances, the retained earnings figure is included,which was obtained through the postclosing trial balance the closing process. 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. If you’re not using accounting software, consider using a trial balance worksheet, which can be used to calculate account totals.
Thepost-closing trial balance has one additional job that the othertrial balances do not have. The post-closing trial balance is alsoused to double-check that the only accounts with balances after theclosing entries are permanent accounts. If there are any temporaryaccounts on this trial balance, you would know that there was anerror in the closing process. The process of preparing the post-closing trial balance is thesame as you have done when preparing the unadjusted trial balanceand adjusted trial balance. Only permanent account balances shouldappear on the post-closing trial balance. These balances inpost-closing T-accounts are transferred over to either the debit orcredit column on the post-closing trial balance.
What is a post-closing trial balance?
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If they do not match, it indicates that there is an error in the accounting records that needs to be corrected. The main difference between the post-closing trial balance and the adjusted trial balance is that this statement contains the income statement accounts like revenues, expenses, and other gain or lost accounts. 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.
The Post-Closing Trial Balance
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. It is very important to understandthat no matter what your position, if you work in business you needto be able to read financial statements, interpret them, and knowhow to use that information to better your business. 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. Since most trial balances do not list accounts with zero balances, the post-closing trial balance will include only general ledger balance sheet accounts having balances other than $0.00. The debit and credit amount columns will be summed and the totals should be identical.
These journal entries are then posted into individual accounting ledgers in general ledgers. If the transaction affects the increase of assets, then it should be debited. You have been exposed to the concepts of recording and journalizing transactions previously, but this explains the rest of the accounting process. The accounting cycle is the repetitive set of steps that must occur in every business every period in order to meet reporting requirements. 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.
The trial balance and post-closing trial balance are both important financial statements used in accounting. 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. 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. While a post-closing trial balance and an adjusted trial balance both serve as important financial reports for a company, their purpose and content differ. Finally, the accountant prepares the post-closing trial balance by listing all accounts with their updated balances after the closing entries have been made. Nominal accounts are those that are found in the income statement, and withdrawals.
When all accountshave been recorded, total each column and verify the columns equaleach other. 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. As with the unadjusted and adjusted trial balances, both the debit and credit columns are calculated at the bottom of a trial balance. If these columns aren’t equal, the trial balance was prepared incorrectly or the closing entries weren’t transferred to the ledger accounts accurately.