A Beginner’s Guide to the 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. It’s important to note that the after-closing trial balance is not a financial statement but rather a report that is used to ensure the accuracy of the company’s books before preparing the financial statements. 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. 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.

• The unadjusted trial balance in this section includes accounts before they have been adjusted.
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• Each account balance is transferred from their ledger accounts to the post-closing trial balance.
• A post-closing trial balance is a financial report that lists all the accounts with their updated balances after the closing entries have been made 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. 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. 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.

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• These balances in
  post-closing T-accounts are transferred over to either the debit or
  credit column on the post-closing trial balance.
• Reversing entries reverse an adjusting entry made in a prior period at the start of a new period.
• Therefore, a post-closing trial balance will include a list of all permanent accounts that still have balances.
• Finally, when the new accounting period is about to begin, you would run the post-closing trial balance, which reflects your totals going forward into the new accounting period.

If the debit and credit columns equal each other, it means the expenses equal the revenues. This would happen if a company broke even, meaning the company did not make or lose any money. If there is a difference between the two numbers, that difference is the amount of net income, or net loss, the company has earned. Unearned revenue had a credit balance of $4,000 in the trial balance column, and a debit adjustment of $600 in the adjustment column.

What is a Post-Closing Trial Balance?

In other words, the post closing trial balance is a list of accounts or permanent accounts that still have balances after the closing entries have been made. The purpose of closing entries is to close all temporary accounts and adjust the balances of real accounts such as owner’s capital. Like all of your trial balances, the post-closing balance of debits and credits must match. The unadjusted trial balance is your first look at your debit and credit balances.

Nominal accounts are those that are found in the income statement, and withdrawals. After Paul’s Guitar Shop posted its closing journal entries in the previous example, it can prepare this post closing trial balance. 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 all of the adjusting entries for ABC Business are reflected in the adjusted trial balance, we still need to do some closing entries before running the post-closing trial balance. The balance sheet is classifying the accounts by type of accounts, assets and contra assets, liabilities, and equity. Even though they are the same numbers in the accounts, the totals on the worksheet and the totals on the balance sheet will be different because of the different presentation methods.

These columns should balance, otherwise, it would likely mean that there has been an error in the posting of the adjusting entries. Unlike an adjusted trial balance, which includes all accounts with up-to-date balances after adjusting entries, a post-closing trial balance only includes accounts with balances after the closing entries. Firstly, it ensures that the company’s books are balanced and all temporary accounts have been closed, providing an accurate financial position. Additionally, a post-closing trial balance can be used to check the accuracy of financial statements, as it lists all the accounts with their updated balances after the closing entries have been made. 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.

Locating Errors

Typically, the heading consists of three lines containing the company name, name of the trial balance, and date of the reporting period. Even if you’re using accounting software, running a trial balance can be important because it allows you to review account balances for accuracy. Running a trial balance is a must fdic seeking to transition from quarterly call reports for anyone manually recording financial transactions since it helps to make sure that debits and credits are in balance — which is the core principle of double-entry accounting. Since there are several types of errors that trial balances fail to uncover, each closing entry must be journalized and posted carefully.

5 Prepare Financial Statements Using the Adjusted Trial Balance

In essence, the company’s business is always in operation, while the accounting cycle utilizes the cutoff of month-end to provide financial information to assist and review the operations. The above-mentioned factors could be all those factors that result in the debit columns totals do not match with the credit column totals. Secondly, it can be used to verify the accuracy of financial statements, which is crucial for investors and other stakeholders in making informed decisions. In these columns we record all asset, liability, and equity accounts. Both US-based companies and those headquartered in other countries produce the same primary financial statements—Income Statement, Balance Sheet, and Statement of Cash Flows.

That is because they just started business this month and have no beginning retained earnings balance. In the Printing Plus case, the credit side is the higher figure at $10,240. This means revenues exceed expenses, thus giving the company a net income. If the debit column were larger, this would mean the expenses were larger than revenues, leading to a net loss. You want to calculate the net income and enter it onto the worksheet.

Post-Closing Trial Balance Example

For example, an unadjusted trial balance is always run before recording any month-end adjustments. Once the adjustments have been posted, you would then run an adjusted trial balance. Temporary accounts are used to record transactions for a specific accounting period, such as revenue, expense, and dividend accounts. It provides a quick and easy way to verify that the company’s books are balanced and that all the accounts have been correctly classified. Instead, they are accounting department documents that are not distributed.

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). If you’re not using accounting software, consider using a trial balance worksheet, which can be used to calculate account totals.

One way to find the error is to take the difference between the two totals and divide the difference by two. Remember that closing entries are only used in systems using actual bound books made of paper. In any case, they are an important concept and they officially represent the end of the process.