A Beginner’s Guide to the Post-Closing Trial Balance

Before that, it had a credit balance of 9,850 as seen in the adjusted trial balance above. Once your adjusted trial balance has been completed, you’re ready to record post-closing https://simple-accounting.org/ entries for the month. A post-closing trial balance is a report that is run to verify that all temporary accounts have been closed and their beginning balance reset to zero.

Doing so ensures that the company’s financial statements accurately reflect the financial position of the company. Now that we have completed the accounting cycle, let’s take a
look at another way the adjusted trial balance assists users of
information with financial decision-making. At this point, the accounting cycle is complete, and the company
can begin a new cycle in the next period. 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 accounting equation is balanced, as shown on the balance sheet, because total assets equal $29,965 as do the total liabilities and stockholders’ equity. Total expenses are subtracted from total revenues to get a net income of $4,665. If total expenses were more than total revenues, Printing Plus would have a net loss rather than 8 incredible tips to ask for donations in person a net income. This net income figure is used to prepare the statement of retained earnings. 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. As with all financial reports, trial balances are always prepared with a heading.

  1. Nominal accounts are those that are found in the income statement, and withdrawals.
  2. If these columns aren’t equal, the trial balance was prepared incorrectly or the closing entries weren’t transferred to the ledger accounts accurately.
  3. The ninth, and typically final, step of the process is to prepare a post-closing trial balance.
  4. If you review the income statement, you see that net income is in fact $4,665.

If a trial balance is in balance, does this mean that all of the numbers are correct? It is important to go through each step very carefully and recheck your work often to avoid mistakes early on in the process. Accounting software will generate a post-closing trial balance (or any other trial balance) with a click of the mouse.

Income Statement

Now that we have completed the accounting cycle, let’s take a look at another way the adjusted trial balance assists users of information with financial decision-making. Before you can run a post-closing trial balance, you’ll have to make sure that all of your adjusting journal entries have been entered. One of the most well-known financial schemes is that involving the companies Enron Corporation and Arthur Andersen. Enron defrauded thousands by intentionally inflating revenues that did not exist. 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.

Share This Book

Remember that adding debits and credits is like adding positive and negative numbers. This means the $600 debit is subtracted from the $4,000 credit to get a credit balance of $3,400 that is translated to the adjusted trial balance column. As a result, temporary accounts do not have balances at the end of the accounting period and are not included in a post-closing trial balance. A post-closing trial balance ensures that all temporary accounts have been closed and that the company’s books are balanced.

What is a Post-Closing 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. These credit balances would transfer to the credit column on the unadjusted trial balance. Once all ledger accounts and their balances are recorded, the debit and credit columns on the trial balance are totaled to see if the figures in each column match each other.

That makes it much easier to create accurate financial statements. In Completing the Accounting Cycle, we continue our discussion of the accounting cycle, completing the last steps of journalizing and posting closing entries and preparing a 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.

Take a couple of minutes and fill in the income statement and balance sheet columns. The next step is to record information in the adjusted trial balance columns. Once the trial balance information is on the worksheet, the next step is to fill in the adjusting information from the posted adjusted journal entries.

Concepts Statements give the Financial Accounting Standards Board (FASB) a guide to creating accounting principles and consider the limitations of financial statement reporting. 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. After posting the above entries, all the nominal accounts would zero-out, hence the term “closing entries”.

After a company posts its day-to-day journal entries, it can begin transferring that information to the trial balance columns of the 10-column worksheet. Preparing an unadjusted trial balance is the fourth step in the accounting cycle. A trial balance is a list of all accounts in the general ledger that have nonzero balances. A trial balance is an important step in the accounting process, because it helps identify any computational errors throughout the first three steps in the cycle. A post-closing trial balance is a financial report prepared at the end of an accounting period to ensure that all temporary accounts have been closed and the company’s books are balanced.

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

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. If you look in the balance sheet columns, we do have the new, up-to-date retained earnings, but it is spread out through two numbers. If you combine these two individual numbers ($4,665 – $100), you will have your updated retained earnings balance of $4,565, as seen on the statement of retained earnings. When you prepare a balance sheet, you must first have the most updated retained earnings balance.

Dividends are taken away from the sum of beginning retained earnings and net income to get the ending retained earnings balance of $4,565 for January. This ending retained earnings balance is transferred to the balance sheet. 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.

Accountants use the 10-column worksheet to help calculate end-of-period adjustments. Using a 10-column worksheet is an optional step companies may use in their accounting process. The statement of retained earnings always leads with beginning retained earnings. Beginning retained earnings carry over from the previous period’s ending retained earnings balance. Since this is the first month of business for Printing Plus, there is no beginning retained earnings balance. Notice the net income of $4,665 from the income statement is carried over to the statement of retained earnings.

Accounting software can perform such tasks as posting the journal
entries recorded, preparing trial balances, and preparing financial
statements. Students often ask why they need to do all of these
steps by hand in their introductory class, particularly if they are
never going to be an accountant. If you have
never followed the full process from beginning to end, you will
never understand how one of your decisions can impact the final
numbers that appear on your financial statements. You will not
understand how your decisions can affect the outcome of your
company. Like all trial balances, the post-closing trial balance has the job of verifying that the debit and credit totals are equal.

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. Provide the web link to the company’s Form 10-K, to allow accurate verification of your answers. Learn more about how Pressbooks supports open publishing practices.


อีเมลของคุณจะไม่แสดงให้คนอื่นเห็น ช่องข้อมูลจำเป็นถูกทำเครื่องหมาย *

Previous post Maxicapital правда о брокере от клиентов компании
Next post What is a Post-closing Trial Balance?