Post-Closing Trial Balance Example, Purpose Format, Preparation, Errors

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. We also have an accompanying spreadsheet which shows you an example of each step.

In summary, the post-closing trial balance is not just a formality; it’s an essential step that ensures the integrity and readiness of a company’s books for the challenges of the upcoming financial period. It’s a collective effort that involves various perspectives, all converging to safeguard the accuracy and reliability of financial information. The post-closing trial balance shows all expense accounts at zero, but there’s a balance in the supplies expense account. This indicates that a purchase invoice may prepare a post closing trial balance have been overlooked or an adjusting entry was not made, requiring further investigation.

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In essence, the company’sbusiness is always in operation, while the accounting cycleutilizes the cutoff of month-end to provide financial informationto assist and review the operations. In this case, accountants will need to review the closing entries once more to identify and fix and issue. Accountants are looking for a net-zero trial balance, which signals a successful period close and the end of the accounting cycle. 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. For example, a company might implement a cloud-based accounting system that allows the accounting team to access and update financial records from anywhere, at any time.

It is important to review the accounts and troubleshoot any errors in the closing process once identified. The post-closing trial balance report lists down all the individual accounts after accounting for the closing entries. At this point in the accounting cycle, all the temporary accounts have been closed and zeroed out to permanent accounts. Therefore, a post-closing trial balance will include a list of all permanent accounts that still have balances. 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.

• You need to make adjustment entries in case of any accounting errors, as stated above.
• Post-closing trial balances are a key component of the end-of-period closing procedures.
• Instead, it would reflect the updated retained earnings and the balances of other permanent accounts.
• 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).

The Accounting Cycle Example

Its purpose is to test the equality between debits and credits after the recording phase. A trial balance is a report that lists the ending account balances in your general ledger. A repository for all of your accounts, every transaction recorded either in your accounting software or in your manual ledgers directly impacts the general ledger. You achieve this by tallying the debit column with the credit column of your company’s trial balance.

For auditors, it involves a rigorous verification process to confirm that all financial activities are accounted for and properly documented. Business owners view accuracy as a reflection of the company’s financial health and a predictor of future performance. From an accountant’s perspective, the post-closing trial balance is the culmination of meticulous work throughout the accounting period.

How does the post-closing trial balance relate to the balance sheet?

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. Since only balance sheet accounts are listed on this trial balance, they are presented in balance sheet order starting with assets, liabilities, and ending with equity. There are three types of trial balances companies will prepare during the accounting cycle, including the post-closing version. Auditors, on the other hand, view the post-closing trial balance as a foundational document for their review process. It’s a starting point that must be beyond reproach, as any errors detected at this stage could indicate deeper issues within the company’s financial practices.

The post-closing trial balance is not just a formality but a vital checkpoint in the financial reporting process. It ensures that the financial records are clean, complete, and ready for the challenges of the upcoming fiscal period. By understanding its purpose from various perspectives, one can appreciate its role in maintaining the integrity of financial information. Preparing the post-closing trial balance will follow the same process that took to create the unadjusted or adjusted trial balance. Each individual account balance is transferred from their ledger accounts to the post-closing trial balance. All account 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.

Company

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. The balances of the nominal accounts (income, expense, and withdrawal accounts) have been absorbed by the capital account – Mr. Gray, Capital. We do not cover reversing entries inthis chapter, but you might approach the subject in futureaccounting courses.

• The accounting cycle is an involved process that requires different stages of analysis, adjustments and preparation.
• Now that we have completed the accounting cycle, let’s take alook at another way the adjusted trial balance assists users ofinformation with financial decision-making.
• When accountants “close” the books at the end of the month, quarter, or year, they’ll zero out temporary accounts, like revenues and expenses, and move their balances to retained earnings.
• The post-closing trial balance is a crucial financial statement that reflects the balances of permanent accounts after all temporary accounts have been closed.
• It’s a moment of truth for accountants, where the figures laid out before them are a testament to the financial narrative of the past period.

For this reason, most procedures for closing the books do not include a step for printing and reviewing the post-closing trial balance. Say for instance Watson Electronics paid $25,000 to Bob & Co who is the supplier of goods. However, you debit Bob & Co’s account with $2,500 only while posting this transaction to the general ledger. 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.

After closing out our temporary accounts, we make one more trial balance that shows our permanent accounts.

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. Permanent accounts are accounts that once opened will always be a part of a company’s chart of accounts. Revenue, expenses and dividends do not show up on the post-closing trial balance because they are considered temporary accounts.

All accounts with debit balances are listed on the left column and all accounts with credit balances are listed on the right column. Adjusted trial balance – This is prepared after adjusting entries are made and posted. Its purpose is to test the equality between debits and credits after adjusting entries are prepared. Learn how to prepare a post-closing trial balance, ensuring accuracy in financial reporting by verifying that all temporary accounts are closed and the ledger is balanced. As we can see from the above example, the debit and the credit columns balances are matching.

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

You will not understand how your decisions can affect the outcome of your company. The post-closing trial balance is a critical step in the accounting cycle, ensuring the accuracy and completeness of financial statements and preparing the books for the next accounting period. By understanding the purpose, preparation, and significance of the post-closing trial balance, you can ensure that your financial records are accurate and ready for the next accounting cycle. Many students who enroll in an introductory accounting course donot plan to become accountants. They will work in a variety of jobsin the business field, including managers, sales, and finance.

This final snapshot includes only the real or permanent accounts, as temporary accounts—revenues, expenses, dividends, and income summary—have been zeroed out and their balances transferred to the retained earnings. The post-closing trial balance is a crucial financial statement that reflects the balances of permanent accounts after all temporary accounts have been closed. Essentially, it serves as a snapshot similar to a balance sheet, showcasing only the accounts that will carry over into the next accounting period. After the closing entries are made, which include adjustments for revenues, expenses, and dividends, all temporary accounts—such as revenue and expense accounts—will show a zero balance. This leaves only the permanent accounts, which consist of assets, liabilities, and equity. Ensuring accuracy in post-closing trial balances is crucial for the integrity of financial reporting.