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

It ensures the accuracy of the closing process and identifies any discrepancies that need correction. Firstly, it ensures that the company’s books are balanced and all temporary accounts have been closed, providing an accurate financial position. Many students who enroll in an introductory accounting course donot plan to become accountants. They will work in a variety of jobsin the business field, including managers, sales, and finance.

In the first and second closing entries, the balances of Service Revenue and the various expense accounts were actually transferred to Income Summary, which is a temporary account. 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). Journal entries used to transfer balances from temporary accounts to permanent accounts at the end of an accounting period. These accounts carry their balances into the next accounting period and are used to prepare the financial statements.

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The post-closing trial balance is only one of the many sheets and statements that must be completed. However, in larger companies, an accountant may oversee other well-trained financial professionals who prepare these and other documents. As the name might suggest, the unadjusted trial balance is prepared before accountants record adjusting journal entries, and the adjusted balance is prepared afterward. 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.

• In the first and second closing entries, the balances of Service Revenue and the various expense accounts were actually transferred to Income Summary, which is a temporary account.
• However, in larger companies, an accountant may oversee other well-trained financial professionals who prepare these and other documents.
• This version contains the ending balances of all accounts in the general ledger, before any adjustments have been made to them with adjusting entries.
• The purpose of a post-closing trial balance is to check debits and credits after the closing entries have been made.
• 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.
• Accountants are looking for a net-zero trial balance, which signals a successful period close and the end of the accounting cycle.

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It presents a list of accounts and balances after closing entries have been written and posted in the ledger. Preparing the post-closing trial balance will follow the same process that took to create the unadjusted or adjusted trial balance. Each account balance is transferred from their ledger accounts to the post-closing trial balance. All accounts with a debit balance will be listed on the debit side of the trial balance and all accounts with a credit balance will be listed on the credit side of the trial balance. This version contains the ending balances of all accounts in the general ledger, before any adjustments have been made to them with adjusting entries.

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It is the third (and last) trial balance prepared in the accounting cycle. A post-closing trial balance is a trial balance which is prepared after all of the temporary accounts in the general ledger have been closed. This document establishes a clean starting point for the next accounting period, ensuring all accounts are balanced. It provides financial managers with a reliable framework for future planning and performance analysis, enhancing the integrity of financial reporting and supporting long-term stability. Finally, the accountant prepares the post-closing trial balance by listing all accounts with their updated balances after the closing entries have been made. The primary purpose of preparing this post-closing trial balance is to ensure that all accounts are balanced and ready for recording the next period of financial transactions.

Financial Planning and Analysis (FP&A)

This equation shows that the ending balance in retained earnings is calculated by adding net income and subtracting dividends from the beginning balance of retained earnings. Income Summary is then closed to the capital account as shown in the third closing entry. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. My Accounting Course  is a world-class educational resource developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers. Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching.

These balances inpost-closing T-accounts are transferred over to either the debit orcredit column on the post-closing trial balance. When all accountshave been recorded, total each column and verify the columns equaleach other. Like all trial balances, the post-closing trial balance has thejob of verifying that the debit and credit totals are equal. 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.

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• Like an unadjusted or an adjusted trial balance, it will have accounts listed in order of either their account numbers or in the order they appear on the balance sheet.
• The accountant may prepare a series of adjusted trial balances, making a number of adjusting entries before closing the books for the month.
• A post-closing trial balance is a list of balances of ledger accounts prepared after closing entries have been passed and posted to the ledger accounts.
• A post-closing trial balance also ensures debits and credits stay balanced after all closing entries are complete.
• By verifying that debits and credits are equal to one another, accountants can conclude that the closing process was completed accurately, and the company will start the new period with clean books.
• To prepare a post-closing trial balance, each account balance is transferred from the ledger accounts.

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. This adjustment reflects earned revenue and incurred expenses for the period. The adjusted trial balance has to be expanded to include any adjusted accounts. At the end of a period, revenue, and expense ledger accounts are removed and closed. The post-closing trial balance is just a list of the remaining accounts.

All temporaryaccounts with zero balances were left out of this statement. Unlikeprevious trial balances, the retained earnings figure is included,which was obtained through the closing process. Totals of both the debit and credit columns will be calculated at the bottom end of the post-closing trial balance.

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

The order that will follow will be assets first, then liabilities and finally ending off with equity. 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. The purpose of the post-closing trial balance is to ensure the accuracy of the accounting records for a specific accounting period, typically a month, quarter post closing trial balance or year. It is prepared after all adjusting entries have been made and financial statements have been completed.