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. It provides a snapshot of the company’s financial position at the end of the accounting period after all temporary accounts have been closed and their balances have been transferred to permanent accounts. 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.

You will not understand how your decisions can affect the outcome of your company. 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. To prepare the financial statements, a company will look at the adjusted trial balance for account information.

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. 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. In conclusion, a post-closing trial balance is an important financial report for a company to ensure that all temporary accounts have been closed and the books are balanced.

1. Reversing entries reverse an adjusting entry made in a prior period at the start of a new period.
2. Once your adjusted trial balance has been completed, you’re ready to record post-closing entries for the month.
3. 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.
4. 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.

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. 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. 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.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. What do you do if you have tried both methods and neither has worked? Unfortunately, you will have to go back through one step at a time until you find the error. Review the annual report of Stora Enso which is an international company that utilizes the illustrated format in presenting its Balance Sheet, also called the Statement of Financial Position.

The adjustments total of $2,415 balances in the debit and credit columns. Presentation differences are most noticeable between the nonprofit fraud prevention two forms of GAAP in the Balance Sheet. Under US GAAP there is no specific requirement on how accounts should be presented.

Like all trial 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. 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.

AccountingTools

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. The $4,665 net income is found by taking the credit of $10,240 and subtracting the debit of $5,575. When entering net income, it should be written in the column with the lower total.

Firstly, it ensures that the company’s books are balanced and all temporary accounts have been closed, providing an accurate financial position. All temporary
accounts with zero balances were left out of this statement. Unlike
previous trial balances, the retained earnings figure is included,
which was obtained through the closing process. Accounting software requires that all journal entries balance before it allows them to be posted to the general ledger, so it is essentially impossible to have an unbalanced trial balance. Thus, the post-closing trial balance is only useful if the accountant is manually preparing accounting information.

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

It is worth mentioning that there is one step in the process that a company may or may not include, step 10, reversing entries. Reversing entries reverse an adjusting entry https://simple-accounting.org/ made in a prior period at the start of a new period. We do not cover reversing entries in this chapter, but you might approach the subject in future accounting courses.

BUS103: Introduction to Financial Accounting

Your stockholders, creditors, and other outside professionals will use your financial statements to evaluate your performance. If you evaluate your numbers as often as monthly, you will be able to identify your strengths and weaknesses before any outsiders see them and make any necessary changes to your plan in the following month. After the unadjusted trial balance is prepared and it appears error-free, a company might look at its financial statements to get an idea of the company’s position before adjustments are made to certain accounts.

There is a worksheet approach a company may use to make sure end-of-period adjustments translate to the correct financial statements. 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. If you like quizzes, crossword puzzles, fill-in-the-blank, matching exercise, and word scrambles to help you learn the material in this course, go to My Accounting Course for more.

There is actually a very good reason we put dividends in the balance sheet columns. To get the numbers in these columns, you take the number in the trial balance column and add or subtract any number found in the adjustment column. There is no adjustment in the adjustment columns, so the Cash balance from the unadjusted balance column is transferred over to the adjusted trial balance columns at $24,800. Interest Receivable did not exist in the trial balance information, so the balance in the adjustment column of $140 is transferred over to the adjusted trial balance column. Looking at the asset section of the balance sheet, Accumulated Depreciation–Equipment is included as a contra asset account to equipment. The accumulated depreciation ($75) is taken away from the original cost of the equipment ($3,500) to show the book value of equipment ($3,425).

Prepare a Post-Closing Trial Balance

From this information, the company will begin constructing each of the statements, beginning with the income statement. The statement of retained earnings will include beginning retained earnings, any net income (loss) (found on the income statement), and dividends. The balance sheet is going to include assets, contra assets, liabilities, and stockholder equity accounts, including ending retained earnings and common stock. Many students who enroll in an introductory accounting course do
not plan to become accountants. They will work in a variety of jobs
in the business field, including managers, sales, and finance.

To get that balance, you take the beginning retained earnings balance + net income – dividends. If you look at the worksheet for Printing Plus, you will notice there is no retained earnings account. That is because they just started business this month and have no beginning retained earnings balance. Treat the income statement and balance sheet columns like a double-entry accounting system, where if you have a debit on the income statement side, you must have a credit equaling the same amount on the credit side.

The post-closing trial balance for Printing Plus is shown in (Figure). The post-closing trial balance for Printing Plus is shown in

Figure 5.8. The post-closing trial balance for Printing Plus is shown in Figure 5.8.