Post-Closing Trial Balance Financial Accounting

post closing trial balance example

If these columns aren’t equal, the trial balance was prepared incorrectly or the closing entries weren’t transferred to the ledger accounts accurately. Like all trial west virginia cst-200cu balances, the post-closing trial balance has the job of verifying that the debit and credit totals are equal. The post-closing trial balance has one additional job that the other trial balances do not have.

Once your adjusted trial balance has been completed, you’re ready to record post-closing entries for the month. The ninth, and typically final, step of the process is to prepare a post-closing trial balance. The word “post” in this instance means “after.” You are preparing a trial balance after the closing entries are complete. 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.

Arthur Andersen was the auditing firm in charge of independently verifying the accuracy of Enron’s financial statements and disclosures. This meant they would review statements to make sure they aligned with GAAP principles, assumptions, and concepts, among other things. Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career.

The Importance of Understanding How to Complete the Accounting Cycle

The post-closing trial balance is also used to double-check that the only accounts with balances after the closing entries are permanent accounts. If there are any temporary accounts on this trial balance, you would know that there was an error in the closing process. The process of preparing the post-closing trial balance is the same as you have done when preparing the unadjusted trial balance and adjusted trial balance. Only permanent account balances should appear on the post-closing trial balance. These balances in post-closing T-accounts are transferred over to either the debit or credit column on the post-closing trial balance. When all accounts have been recorded, total each column and verify the columns equal each other.

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. For example, Cash has a final balance of $24,800 on the debit side. This balance is transferred to the Cash account in the debit column on the unadjusted trial balance. Accounts Payable ($500), Unearned Revenue ($4,000), Common Stock ($20,000) and Service Revenue ($9,500) all have credit final balances in their T-accounts.

As you see in step 6 of the accounting cycle, we create another trial balance that is adjusted (see The Adjustment Process). Even if you’re using accounting software, running a trial balance can be important because it allows you to review account balances for accuracy. Notice that this trial balance looks almost exactly like the Paul’s balance sheet except in trial balance format. This is because only balance sheet accounts are have balances after closing entries have been made. As with all financial reports, trial balances are always prepared with a heading. Typically, the heading consists of three lines containing the company name, name of the trial balance, and date of the reporting period.

And finally, in trial balance worksheet definition 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). Before that, it had a credit balance of 9,850 as seen in the adjusted trial balance above. 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.

Types of trial balance

In any case, they are an important concept and they officially represent the end of the process. Instead, they are accounting department documents that are not distributed. There are three main types of trial balance reports that you can run, with each trial balance run during a specific part of the accounting cycle. At this point, the accounting cycle is complete, and the company can begin a new cycle in the next period.

Adjusted trial balance

Unadjusted trial balance – This is prepared after journalizing transactions and posting them to the ledger. Its purpose is to test the equality between debits and credits after the recording phase. This is one of the last steps in the period-end closing process.

Both the debits and credit totals are calculated at the end, and if these are not equal, one can know there must have been some mistake in preparing the trial balance. The balances of the nominal accounts (income, expense, and withdrawal accounts) have been absorbed by the capital account – Mr. Gray, Capital. Hence, you will not see any nominal account in the post-closing trial balance. Nominal accounts are those that are found in the income statement, and withdrawals.

post closing trial balance example

All businesses have adjusting entries that they’ll need to make before closing the accounting period. These adjusting entries include depreciation expenses, prepaid expenses, insurance expenses, and accumulated depreciation. Once your adjusting entries have been made, you’re ready to run your adjusted trial balance.

All accounts with debit balances are listed on the left column and all accounts with credit balances are listed on the right column. This accounts list is identical to the accounts presented on the balance sheet. This makes sense because all of the income statement accounts have been closed and no longer have a current balance. As with the unadjusted and adjusted trial balances, both the debit and credit columns are calculated at the bottom of a trial balance.

Running a trial balance is a must 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. 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 trial balance worksheet contains columns for both income statement and balance sheet entries, allowing you to easily combine multiple entries into a single amount. This makes sure that your beginning balances for the next accounting cycle are accurate. 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.

  1. These adjusting entries include depreciation expenses, prepaid expenses, insurance expenses, and accumulated depreciation.
  2. 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.
  3. Another way to find an error is to take the difference between the two totals and divide by nine.
  4. A post-closing trial balance is, as the term suggests, prepared after closing entries are recorded and posted.
  5. Unadjusted trial balance – This is prepared after journalizing transactions and posting them to the ledger.

The post-closing trial balance is the final step in the accounting cycle

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. And just like any other trial balance, total debits and total credits should be equal. Once we are satisfied that everything is balanced, we carry the balances forward to the new blank pages of the next (now current) year’s ledger and are ready to start posting transactions. Accounting software will generate a post-closing trial balance (or any other trial balance) with a click of the mouse. The post-closing trial balance for Printing Plus is shown in Figure 5.8.

AccountingTools

At the bottom of the debit balance and credit balance columns will be a total for each. When accounting software is used, the totals should always be identical. 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.

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