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. A listing of all of the accounts in the general ledger with account balances after the closing entries have been posted. This means that the listing would consist of only the balance sheet accounts with balances. The income statement accounts would not be listed because they are temporary accounts whose balances have been closed to the owner’s capital account.

While it differs from an adjusted trial balance in purpose and content, both serve as crucial tools to ensure the accuracy of financial records and statements. 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. Next, the accountant closes the temporary accounts by transferring their balances to the permanent accounts, such as retained earnings. 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.

Post-Closing Trial Balance

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. Accountants who do not use an accounting software program typically use a trial balance worksheet which is used to calculate all the account totals. Having the information well-organized makes it easier to present as well as create accurate financial statements.

The balances for each account are added together to show that the debit and credit balance is equal. The original trial balance contains recorded transactions in accounts as they take place. There are some business transactions, such as accruals and prepayments that have to be adjusted at the end of each accounting period.

BUS103: Introduction to Financial Accounting

The trial balance is a financial report companies prepare to summarize the balance on each account at the end of each year. Once prepared, companies adjust certain items to get to the post-closing trial balance. Essentially, it involves moving temporary balances on income statement accounts to permanent ones like equity or retained earnings. The primary objective behind the post-closing trial balance is to reaffirm the accuracy and integrity of the accounting post-closing trial balance definition records, ascertaining the equilibrium within the company’s esteemed accounting equation. Through the meticulous execution of the closing process, income statement accounts are seamlessly reconciled to zero, and their respective balances get transferred to the pertinent equity accounts. The post-closing trial balance is a report that is created to verify all of a company’s temporary accounts are closed and their new beginning balance has been reset to zero.

• They are prepared at different stages in the accounting cycle but have the same purpose – i.e. to test the equality between debits and credits.
• These accounts carry their balances into the next accounting period and are used to prepare the financial statements.
• Bookkeepers and accountants or small business owners use different types of trial balance, depending on the stage of the accounting cycle close.
• By summing the debits together, and the credits together, we see that each reconcile to $2,120 in August.
• Accountants who do not use an accounting software program typically use a trial balance worksheet which is used to calculate all the account totals.
• The accountant may prepare a series of adjusted trial balances, making a number of adjusting entries before closing the books for the month.

The last step in the accounting cycle (not counting reversing entries) is to prepare a post-closing trial balance. They are prepared at different stages in the accounting cycle but have the same purpose – i.e. to test the equality between debits and credits. Preparing a trial balance for a company serves to detect any mathematical errors that have occurred in the double entry accounting system. If the total debits equal the total credits, the trial balance is considered to be balanced, and there should be no mathematical errors in the ledgers.

What is not included in a post-closing trial balance?

A post-closing trial balance is prepared after the adjusted trial balance. Therefore, there are fewer chances of errors and omissions in the post-closing process. The sum of all debit and credit accounts should be equal in the post-closing trial balance. Otherwise, an adjustment entry will be required to reflect correct balances. Adjusted and post-closing trial balances are two stages of preparing a trial balance statement after the initial unadjusted entries. The post-closing trial balance follows a similar format to the traditional one.

Temporary accounts, such as revenue and expense accounts, are closed at the end of the accounting period, and their balances are transferred to permanent accounts, such as retained earnings. A post-closing trial balance aims to ensure that the company’s books are balanced and that all temporary accounts have been closed. Like more trial balances, the debit and credit columns are totaled at the bottom to ensure the accounting equation is in balance. A post-closing trial balance is, as the term suggests, prepared after closing entries are recorded and posted. It is the third (and last) trial balance prepared in the accounting cycle.