The retained earnings account is a new permanent account listed on this trial balance which you won’t find in the trial balances (adjusted and unadjusted) that preceded the post-closing trial balance. Preparing the post closing trial balance is one of the last steps in the accounting cycle. It’s basically a summary of the general ledger at the end of an accounting period after the closing entries have been made and the financial statements have been prepared. The purpose of this trial balance is to make sure that no more temporary account balances exist before the books are rolled forward into the next year. 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.
All trial balance reports are run to make sure that debits and credits remain in balance. Like more trial balances, the debit and credit columns are totaled at the bottom to ensure the accounting equation is in balance. A post-closing trial balance is a trial balance which is prepared after all of the temporary accounts in the general ledger have been closed.
An example of a post-closing trial balance
Since most trial balances do not list accounts with zero balances, the post-closing trial balance will include only general ledger balance sheet accounts having balances other than $0.00. The debit and credit amount columns will be summed and the totals should be identical. Preparing the post-closing trial balance will follow the same process that took to create the unadjusted or adjusted trial balance. Each account balance is transferred from their ledger accounts to the post-closing trial balance. All accounts with a debit balance will be listed on the debit side of the trial balance and all accounts with a credit balance will be listed on the credit side of the trial balance.
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Post-Closing Trial Balance Purpose
We can observe the difference between the adjusted trial balance and the post-closing trial balance. All the temporary accounts like revenue and expense accounts have been closed out into the retained earnings account via the income summary account (as previously explained). As with the unadjusted and adjusted trial balances, both the debit and credit columns are calculated at the bottom of a trial balance. If these columns aren’t equal, the trial balance was prepared incorrectly or the closing entries weren’t transferred to the ledger accounts accurately. The closing entries are the journal entry form of the Statement of Retained Earnings.
The difference between the unadjusted trial balance and the adjusted trial balance is the adjusting entries that are required to align the company accounts for the matching principle. Temporary accounts like revenues, expenses, and distributions have to be closed at the end of each accounting period to permanent accounts like assets, liabilities, and equity. The post closing trial balance lists all remaining accounts with balances after the closing entries have been posted to ensure that no temporary accounts still exist. Posting accounts to the post closing trial balance follows the exact same procedures as preparing the other trial balances. Each account balance is transferred from the ledger accounts to the 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.
What is a Post Closing Trial Balance?
Another peculiar thing about Bob’s post-closing trial balance is that normally a retained earnings account will have a credit balance, but in Bob’s books, it has a debit balance. The reason is that Bob did not make a profit in the first month of his operations. 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. Additionally, the post-closing trial balance will have a retained earnings account which contains the balances of all temporary accounts that have been closed out.
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What is a Post-Closing Trial Balance?
These columns should balance, otherwise, it would likely mean that there has been an error in the posting of the adjusting entries. The unadjusted trial balance is the first trial balance that you’ll prepare, and it should be completed after all entries for the accounting period have been completed. 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.
- 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.
- A post‐closing trial balance is prepared to check the clerical accuracy of the closing entries and to prove that the accounting equation is in balance before the next accounting period begins.
- All accounts with debit balances are listed on the left column and all accounts with credit balances are listed on the right column.
- The post-closing trial balance is used to verify that the total of all debit balances equals the total of all credit balances, which should net to zero.
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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. 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.
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Once the adjustments have been posted, you would then run an adjusted trial balance. The next step of the accounting cycle is to prepare the reversing entries for the beginning of the next accounting cycle. The above-mentioned factors could be all those factors that result in the debit columns totals do not match with the credit column totals.