Post-Closing Trial Balance Example, Purpose Format, Preparation, Errors

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. The post-closing trial balance ends with totals for both credits and debits at the bottom of the sheet. When all assets, liabilities, and equity have been accounted for, the credit and debit totals should be equal. Either the sheet was prepared incorrectly, or all the line items were not properly accounted for.

Before that, it had a credit balance of 9,850 as seen in the adjusted trial balance above. These include accounts receivable, inventory, cash, investments, vehicles, furnishings, and other assets. Add all the asset values together and write the total at the bottom. 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.

Example of a Closing Trial Balance

All temporary accounts with zero balances were left out of this statement. Unlike previous trial balances, the retained earnings figure is included, which was obtained through the closing process. The unadjusted trial balance is your first look at your debit and credit balances. If not, you’ll have to do some research to locate and correct any errors.

The next step of the accounting cycle is to prepare the reversing entries for the beginning of the next accounting cycle. It is important to note that the closing balance of all accounts should reflect zero net balance for all debit and all credit accounts at the closing day. https://www.bookstime.com/ The above-mentioned factors could be all those factors that result in the debit columns totals do not match with the credit column totals. A trial balance is so called because it provides a test of a fundamental aspect of a set of books, but is not a full audit of them.

What is the Purpose of Adjusted Trial Balance?

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. All three of these types have exactly the same format but slightly different uses. The unadjusted trial balance is prepared on the fly, before adjusting journal entries are completed.

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. For this reason, most procedures for closing the books do not include a step for printing and reviewing the post-closing trial balance.

An example of a 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. The post-closing trial balance lists all the accounts in the general ledger that have balances, including asset, liability, equity, revenue, and expense accounts.

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Companies can prepare the adjusted trial balance after making those adjustments. Nominal accounts are those found on the income statement, as well as withdrawals. At the end of the period, all of the account ledgers need to close and then move to the unadjusted trial balance. This is to make sure that the entries that make to the account ledgers are correctly recorded. 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.

• The debit and credit columns, like the unadjusted and adjusted trial balances, are calculated at the bottom of a trial balance.
• Preparing the post-closing trial balance is an important part of the accounting cycle.
• Total the liabilities by adding all the values and write the sum at the bottom.
• A post-closing trial balance will be formatted the same as the other two types of trial balances that have already been discussed.
• Like all trial balances, the post-closing trial balance has the job of verifying that the debit and credit totals are equal.

And finally, in the fourth entry the drawing account is closed to the capital account. At this point, the balance of the capital account would be 7,260 (13,200 credit balance, plus 1,060 credited in the third closing entry, and minus 7,000 debited in the fourth entry). The process of the post-closing trial balance is similar to the adjusted trial balance with a few changes. Here is an example of an adjusted trial balance with adjusting entries. Adjusted trial balance is an advanced form of the commonly used trial balance statement.

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. All of the adjustments should be made to the ledgers and trial balance.

• It is prepared after all adjusting entries have been made and financial statements have been completed.
• They will work in a variety of jobs in the business field, including managers, sales, and finance.
• Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.
• However, in larger companies, an accountant may oversee other well-trained financial professionals who prepare these and other documents.
• The process of the post-closing trial balance is similar to the adjusted trial balance with a few changes.
• These columns should balance, otherwise, it would likely mean that there has been an error in the posting of the adjusting entries.

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. It is important to note that the post-closing trial balance contains only balance items accounts. Income statement items are temporary accounts and are not included in the post-closing 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. The post-closing trial balance proves debits still equal credits after the closing entries have been made.

The post-closing trial balance is the summary of all permanent journal accounts with non-zero balances at the end of an accounting period. The workflow of an adjusted trial balance starts with recording journal entries. A company can follow a step-by-step approach to prepare adjusted trial balance statements. Adjusted and post-closing trial balances are two stages of preparing a trial balance statement after the initial unadjusted entries.