What is a post-closing trial balance?

Each of them is used at different times during the full accounting cycle. Besides the post-closing trial balance, there are two other types. 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. 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. If you’re not using accounting software, consider using a trial balance worksheet, which can be used to calculate account totals. That makes it much easier to create accurate financial statements.

The trial balance is a part of the double-entry bookkeeping system and uses the classic ‘T’ account format for presenting values. Companies can use a trial balance to keep track of their financial position, and so they may prepare several different types of trial balance throughout the financial year. A trial balance may contain all the major accounting items, including assets, liabilities, equity, revenues, expenses, gains, and losses. There are no special conventions about how trial balances should be prepared, and they may be completed as often as a company needs them. 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.

How to prepare and use a trial balance

The accounting cycle typically closes when the accountant records all financial entries in the general ledger and the financial statements are prepared. What happens if your trial balances consistently reveal errors and problems in your financial statements? Here are some tips for increasing the accuracy of your financial records. If you’ve followed the above method, you can simply and quickly calculate all of the credit balances in your credit entry column. If you’re preparing your trial balance with a spreadsheet software program like Microsoft Excel, you can insert a formula that will perform the calculation for you.

The accounting cycle is the repetitive set of steps that must occur in every business every period in order to meet reporting requirements. Even if you’re using accounting software, running a trial balance can be important because it allows you to review account balances for accuracy. Once your adjusted trial balance has been completed, you’re ready to record post-closing entries for the month.

Example Post-Closing Trial Balance

You’ll also need to close each balance to ensure that you focus on a specific time — usually, the duration of your accounting cycle, whether monthly or quarterly. Limitations aside, a trial balance can still be a valuable tool for evaluating https://simple-accounting.org/post-closing-trial-balance-definition/ your company’s finances, and it can be helpful when you examine your company’s financial statements. The third type of Trial Balance is called Post-Closing Trial Balance, it shows the balances after the closing entries have been completed.

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). In a double-entry accounting system, you record your debits and credits in separate columns on your general ledger. For instance, you register a transaction when it occurs, then record the same transaction once you receive payment. The trial balance simply records all of the transactions listed in your general ledger accounts on a separate spreadsheet so you can ensure that your journal entries are balanced and accurate. All three of these types have exactly the same format but slightly different uses.

Requirements for a Trial Balance

A post-closing trial balance is created at the end of a reporting period. It is a list of all the balance sheet accounts that do not have a zero balance. Post-closing trial balances are used to verify whether the debit balance total is equal to the credit balance total. Preparing the post-closing trial balance is an important part of the accounting cycle. The process of creating the post-closing trial balance is completed after entry closing and prepares the accounts for the next period.

The trading profit and loss statement and balance sheet and other financial reports can then be produced using the ledger accounts listed on the same 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. 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.

By summing the debits together, and the credits together, we see that each reconcile to $2,120 in August. Each trial balance will follow the same format as above, but they are used in slightly different circumstances. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. He is the sole author of all the materials on AccountingCoach.com. Provide the web link to the company’s Form 10-K, to allow accurate verification of your answers. Learn more about how Pressbooks supports open publishing practices.

• Your stockholders, creditors, and other outside professionals will use your financial statements to evaluate your performance.
• All businesses have adjusting entries that they’ll need to make before closing the accounting period.
• It is worth mentioning that there is one step in the process that a company may or may not include, step 10, reversing entries.
• A post-closing trial balance is created at the end of a reporting period.
• While a trial balance can provide a helpful snapshot of your financial position, it’s not a foolproof method of preventing all possible mistakes.

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 https://simple-accounting.org/ to assist and review the operations. These accounts accumulate the money earned during the period and start fresh each period. In this example, the debits equal credits ($120,000 and $120,000), which suggests that the debit and credit entries are accurate.

Definition of Post-Closing Trial Balance

This is essential for owners and stakeholders who need the information to make strategic business decisions. The post-closing trial balance is only one of the many sheets and statements that must be completed. An accountant usually prepares the post-closing trial balance sheets. However, in larger companies, an accountant may oversee other well-trained financial professionals who prepare these and other documents.

• Temporary accounts are accounts whose balances are zeroed out at the end of each accounting period.
• Depending on your accounting system, you may need to combine multiple expenses and sources of income.
• The post-closing trial balance contains all accounts that are currently recorded in the general ledger.
• Mary Girsch-Bock is the expert on accounting software and payroll software for The Ascent.
• Whenever any adjustment is performed run trial balance and confirm if all the debit amount is equal to credit amount.

Using the amounts above, the company’s post-closing trial balance will report $200,000 in the debit column and $130,000 in the credit column. This will cause a difference of $130,000 between the balance sheet totals and the post-closing trial balance totals. Also, the revenue, expense, income summary and owner’s drawing accounts will not appear on a post-closing trial balance since these accounts will not carry a balance after the accounting cycle has ended. Accounting and bookkeeping professionals might use a trial balance to perform an internal audit of the company’s finances. While modern accounting software can minimize data entry errors and similar mistakes, trial balances still have their uses among internal company leadership. There are three different types of trial balances used in accounting.

Purpose of the Post-Closing Trial Balance

A post-closing trial balance is the final trial balance prepared before the new accounting period begins. Used to make sure that beginning balances are correct, the post-closing trial balance is also used to ensure that debits and credits remain in balance after closing entries have been completed. In the accounting cycle, there are two other trial balances that are prepared. This report lists all the accounts that a company has and their balances. The next one is called the adjusted trial balance and is a list of all the company accounts and their balances after any adjustments have been made.

• As the accountant prepares the income statement, they use the expense balances from the accounting records.
• If there are any temporary accounts on this trial balance, you would know that there was an error in the closing process.
• Preparing a trial balance for a company serves to detect any mathematical errors that have occurred in the double entry accounting system.
• This error must be found before a profit and loss statement and balance sheet can be produced.
• Even if you’re using accounting software, running a trial balance can be important because it allows you to review account balances for accuracy.