Post-Closing Trial Balance Financial Accounting

At the end of the period, all of the account ledgers need to close and then move to the unadjusted trial balance. This is to make sure that the entries that make to the account ledgers are correctly recorded. The balance sheet is classifying the accounts by type of accounts, assets and contra assets, liabilities, and equity.

  • 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.
  • The statement of retained earnings always leads with beginning retained earnings.
  • 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.
  • This report provides a snapshot of the company’s financial position after the closing entries.

Once all adjusting entries have been recorded, the result is the adjusted trial balance. This one contains entries pertaining to account reconciliation adjustments, depreciation entries, and charges of prepaid expenses to expense. The accountant may prepare a series of adjusted trial balances, making a number of adjusting entries before closing the books for the month. As we can see from the above example, the debit and the credit columns balances are matching. This means that there is no error while posting the closing entries to their individual accounts and then listing those account balances on the post-closing trial balance. Overall, the post-closing trial balance is an important tool for verifying the accuracy of the financial statements and for ensuring that the accounting records are complete and in balance.

Format of a Post-Closing Trial Balance

As you can see, the accountant or bookkeeper first needs to analyze the business transactions and then make the journal entries. Temporary accounts are used to record transactions for a specific accounting period, such as revenue, expense, and dividend accounts. Doing so ensures that the company’s financial statements accurately reflect the financial position of the company. This report provides a snapshot of the company’s financial position after the closing entries. You may notice that dividends are included in our 10-column worksheet balance sheet columns even though this account is not included on a balance sheet. There is actually a very good reason we put dividends in the balance sheet columns.

Some of the important accounts that your business management can track include purchases, debtors, sales, etc. Therefore, Trial Balance is an important accounting statement as it showcases the final status of each of your ledger accounts at the end of the financial year. These final balances help you to prepare final accounts like the Profit and Loss Statement and Balance Sheet. 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. For example, an unadjusted trial balance is always run before recording any month-end adjustments.

2 Prepare a Post-Closing Trial Balance

The post-closing trial balance is the last step in the accounting cycle. It is prepared after all of that period’s business transactions have been posted to the General Ledger via journal entries. The post-closing trial balance can only be prepared after each closing entry has been posted to the General Ledger. The purpose of closing entries is to transfer the balances of the temporary accounts (expenses, revenues, gains, etc.) to the retained earnings account. After the closing entries are posted, these temporary accounts will have a zero balance.

Concept of Trial Balance

As with the trial balance, the purpose of the post-closing trial balance is to ensure that debits equal credits. The post-closing trial balance contains all accounts that are currently recorded in the general ledger. The balances for each account are added together to show that the debit and credit balance is equal. The original trial balance contains recorded transactions in accounts as they take place. There are some business transactions, such as accruals and prepayments that have to be adjusted at the end of each accounting period. This adjustment reflects earned revenue and incurred expenses for the period.

Liabilities

After posting the above entries, all the nominal accounts would zero-out, hence the term “closing entries”. The next step of the accounting cycle is to prepare the reversing entries for the beginning of the next accounting cycle. It is also a non-formal statement that does not form a part of the formal financial https://personal-accounting.org/5-2-prepare-a-post/ statements of a business. It is important to note that the closing balance of all accounts should reflect zero net balance for all debit and all credit accounts at the closing day. The following infographic and explanation will help you to have a better understanding of this Post-closing trial balance.

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. The adjustments total of $2,415 balances in the debit and credit columns. Presentation differences are most noticeable between the two forms of GAAP in the Balance Sheet. Under US GAAP there is no specific requirement on how accounts should be presented. IFRS requires that accounts be classified into current and noncurrent categories for both assets and liabilities, but no specific presentation format is required.

If you review the income statement, you see that net income is in fact $4,665. Unearned revenue had a credit balance of $4,000 in the trial balance column, and a debit adjustment of $600 in the adjustment column. 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. 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.

Example of a Post-Closing Trial Balance

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. A trial balance sheet is an internal report that you prepare to ensure that all the journal entries in your ledger are correctly balanced. That is, the total dollar amount of debit and credit balances in each of the accounts must match at the end of the financial period.