What Is a Post-Closing Trial Balance? With Example and FAQs

To test the equality between debits and credits after closing entries are prepared and posted. Once we get the adjusted trial balance, we then prepare the financial statements and all the suspended accounts need to be closed. The adjusted and post-closing trial balances represent two versions of the record. Both have various similarities in how they report general ledger balances.

• Its purpose is to test the equality between debits and credits after closing entries are prepared and posted.
• The adjusted trial balance does not impact a company’s retained earnings.
• As balance sheet entries are listed in the trial balance, it is done similarly to the balance sheet with first assets, then liabilities, and then equity.
• And finally, in the fourth entry the drawing account is closed to the capital account.
• You’ll also notice that the owner’s capital account has a new balance based on the closing entries you made earlier.

However, if the company also wanted to keep year-to-date information from month to month, a separate set of records could be kept as the company progresses through the remaining months in the year. For our purposes, assume that we are closing the books at the end of each month unless otherwise noted. If the feature is not enabled for a subsidiary in a secondary accounting book, the Accounting Book filter does not include that book when the subsidiary is selected in the Subsidiary Context filter.

FAQs about post-closing trial balance

Used to make sure that beginning balances are correct, the post-closing trial balance is also used to ensure that debits and credits remain in balance after closing entries have been completed. Permanent accounts are accounts that once opened will always be a part of a company’s chart of accounts. The post-closing trial balance will never contain temporary accounts. Temporary accounts are accounts that are not always a part of a company’s chart of accounts. The balances in temporary accounts are zeroed out at the end of each accounting period by transferring them to a permanent account. The reason for this is so that they can be used again in the next accounting period. Once the post-closing trial balance is run, and the verification is made that the sum of all the debits is equal to the sum of all the credits, then and only then is the accounting cycle complete.

We could do this, but by having the Income Summary account, you get a balance for net income a second time. This gives you the balance to compare to the income statement, and allows you to double check that all income statement accounts are closed and have correct amounts. If you put the revenues and expenses directly into retained earnings, you will not see that check figure. No matter which way you choose to close, the same final balance is in retained earnings. Having a zero balance in these accounts is important so a company can compare performance across periods, particularly with income.

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If you’re not using accounting software, consider using a trial balance worksheet, which can be used to calculate account totals. That makes it much easier to create accurate financial statements. Nominal accounts are those that are found in the income statement, and withdrawals.

They include four critical financial statements that show different aspects of operations. However, these financial statements present an end-product of the accounting process. Companies must satisfy various factors during the process to prepare these statements. After the post closing trial balance is finished and https://simple-accounting.org/ checked for any mistakes, any reversing entries that are needed can be made before the next accounting period begins. Next will be a listing of all of the general ledger balance sheet accounts (except those with $0.00 balances) along with each account’s balance appearing in the appropriate debit or credit column.

Post-closing Trial Balance

Like all of your trial balances, the post-closing balance of debits and credits must match. In the accounting cycle, there are two other trial balances that are prepared. This report lists all the accounts that a company has and their balances. The next one is called the adjusted trial balance and is a list of all the company accounts and their balances after any adjustments have been made. So if there are already two other trial balance reports, why would you possibly need another one? Nominal accounts appear in the income statement and the list of withdrawals within the balance sheet.

• It is the end of the year, December 31, 2018, and you are reviewing your financials for the entire year.
• Closing entries to the general ledger reduce the balance of each expense to zero; the accounts are not included in the post-closing trial balance.
• The adjusted trial balance is also used to ensure a business is practicing accounting steps according to accounting standards and accurately reporting their financial statements.
• After Paul’s Guitar Shop posted itsclosing journal entriesin the previous example, it can prepare this post closing trial balance.
• The creation of the post-closing trial balance is the last thing that occurs at the end of an accounting cycle.
• If there are any temporary accounts on this trial balance, you would know that there was an error in the closing process.

The general ledger is a crucial part of the overall accounting process. Using the amounts above, the company’s post-closing trial balance will report $200,000 in the debit column and $130,000 in the credit column. This will cause What Goes In The Post Closing Trial Balance? a difference of $130,000 between the balance sheet totals and the post-closing trial balance totals. A post-closing trial balance is a list of balance sheet accounts with non-zero balances at the end of the reporting period.

What is the Post-closing Trial Balance?

The next day, January 1, 2019, you get ready for work, but before you go to the office, you decide to review your financials for 2019. What are your total expenses for rent, electricity, cable and internet, gas, and food for the current year? You have also not incurred any expenses yet for rent, electricity, cable, internet, gas or food. This means that the current balance of these accounts is zero, because they were closed on December 31, 2018, to complete the annual accounting period.

• The Printing Plus adjusted trial balance for January 31, 2019, is presented inFigure 5.4.
• Once your adjusting entries have been made, you’re ready to run your adjusted trial balance.
• The trial balance worksheet contains columns for both income statement and balance sheet entries, allowing you to easily combine multiple entries into a single amount.
• When all accounts have been recorded, total each column and verify the columns equal each other.

The aim is to have the two figures equal each other for a net zero balance. The fourth entry requires Dividends to close to the Retained Earnings account. Remember from your past studies that dividends are not expenses, such as salaries paid to your employees or staff. Instead, declaring and paying dividends is a method utilized by corporations to return part of the profits generated by the company to the owners of the company—in this case, its shareholders. Printing Plus has a $4,665 credit balance in its Income Summary account before closing, so it will debit Income Summary and credit Retained Earnings. The Post Closing Trial Balance shows the balance of each active account for the period. Rather than the Debit and Credit columns of the standard Trial Balance, a single total amount column is provided labeled Debit/.

Why doesn’t the balance sheet equal the post-closing trial balance?

An essential part of the adjusted trial balance is true-up and adjusting entries. 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. All trial balance reports are run to make sure that debits and credits remain in balance. It ensures that at the end of an accounting period, the sum of the total debits is equal to the sum of the total credits. The post-closing trial balance gives a listing of each permanent account that a company has and its balance. The post closing trial balance is a list of all accounts and their balances after theclosing entries have been journalized and posted to the ledger. 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.