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

This ending retained earnings balance is transferred to the balance sheet. 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.

  • They will work in a variety of jobs in the business field, including managers, sales, and finance.
  • Adjusting entries are made to record any transactions that occurred but were not recorded during the period or correct any accounting records errors.
  • While it differs from an adjusted trial balance in purpose and content, both serve as crucial tools to ensure the accuracy of financial records and statements.
  • Since this is the first month of business for Printing Plus, there is no beginning retained earnings balance.
  • A trial balance is a list of all accounts in the general ledger that have nonzero balances.

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The Accounting Cycle Example

The word “post” in this instance means “after.” You are preparing a trial balance after the closing entries are complete. 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. The trial balance worksheet contains columns for both income statement and balance sheet entries, allowing you to easily combine multiple entries into a single amount. This makes sure that your beginning balances for the next accounting cycle are accurate. A post-closing trial balance is, as the term suggests, prepared after closing entries are recorded and posted. It is the third (and last) trial balance prepared in the accounting cycle.

  • 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.
  • However, all the other accounts having non-negative balances are listed, including the retained earnings account.
  • Note that for this step, we are considering our trial balance to be unadjusted.
  • Take a couple of minutes and fill in the income statement and balance sheet columns.
  • US GAAP has no requirement for reporting prior periods, but the SEC requires that companies present one prior period for the Balance Sheet and three prior periods for the Income Statement.

If not, you’ll have to do some research to locate and correct any errors. Additionally, a post-closing trial balance can be used to check the accuracy of financial statements, as it lists all the accounts with their updated balances after the closing entries have been made. Temporary accounts, such as revenue and expense accounts, are closed at the end of the accounting period, and their balances are transferred to permanent accounts, such as retained earnings. The statement of retained earnings always leads with beginning retained earnings.

The Importance of Understanding How to Complete the Accounting

In these columns we record all asset, liability, and equity accounts. There is a worksheet approach a company may use to make sure end-of-period adjustments translate to the correct financial statements. 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. This website covers a variety of
accounting topics including financial accounting basics, accounting
principles, the accounting cycle, and financial statements, all
topics introduced in the early part of this course. Another way to find an error is to take the difference between the two totals and divide by nine. If the outcome of the difference is a whole number, then you may have transposed a figure.

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. 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 how to void a check permanent accounts. 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. The post closing trial balance is a list of all accounts and their balances after the closing entries have been journalized and posted to the ledger.

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If there is a difference between the two numbers, that difference is the amount of net income, or net loss, the company has earned. 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.

Ten-Column Worksheets

Our experts love this top pick, which features a 0% intro APR for 15 months, an insane cash back rate of up to 5%, and all somehow for no annual fee. By summing the debits together, and the credits together, we see that each reconcile to $2,120 in August. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License . 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.

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

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. The process of preparing the post-closing trial balance is the
same as you have done when preparing the unadjusted trial balance
and adjusted trial balance. Only permanent account balances should
appear on the post-closing trial balance. These balances in
post-closing T-accounts are transferred over to either the debit or
credit column on the post-closing trial balance.

Format of a Post-Closing Trial Balance

The post-closing trial balance proves debits still equal credits after the closing entries have been made. 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 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. Note that for this step, we are considering our trial balance to be unadjusted. The unadjusted trial balance in this section includes accounts before they have been adjusted.

It is important to go through each step very carefully and recheck your work often to avoid mistakes early on in the process. The post-closing trial balance for Printing Plus is shown in Figure 5.8. Income Summary is then closed to the capital account as shown in the third closing entry. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

A post-closing trial balance is a listing of all balance sheet accounts containing non-zero balances at the end of a reporting period. 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. This accounts list is identical to the accounts presented on the balance sheet.

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