Post-closing Trial Balance Meaning, Purpose And More

The accounts which collected information about revenue and expenses for the accounting period are temporary. For closing temporary accounts the Income Summary account will be used for the definition of financial result of the company activity.

• It is known that the total on the balance sheet is not the same as the post-closing trial balance.
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• You see that you earned $120,000 this year in revenue and had expenses for rent, electricity, cable, internet, gas, and food that totaled $70,000.
• Temporary accounts are accounts whose balances are zeroed out at the end of each accounting period.
• Income Summary is then closed to the capital account as shown in the third closing entry.

This is an optional step in the accounting cycle that you will learn about in future courses. Steps 1 through 4 were covered in Analyzing and Recording Transactions and Steps 5 through 7 were covered in The Adjustment Process. At the bottom of the debit balance and credit balance columns will be a total for each. When accounting software is used, the totals should always be identical. 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.

The post-closing trial balance is the final step in the accounting cycle

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. When all accounts have been recorded, total each column and verify the columns equal each other. After the closing entries are journalized and posted, only permanent, balance sheet accounts remain open. A post‐closing https://www.bookstime.com/ 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. To know how much your revenue and expenses were for a specific period, you need to start the period with a zero balance in your revenue and expense accounts. The post-closing trial balance helps you verify that these accounts have zero balances.

• Temporary ledger accounts are recurring accounts that start and end with zero balances for every accounting cycle.
• Accountants in the company prepare the unadjusted trial balance after entries are made in the journal and ledger.
• It is the process of adjusting the trial balances of all accounts.
• The accounts and amounts in the ledger should agree exactly with the accounts and amounts listed in the balance sheet at the end of the period.

As closing entries close all the temporary ledger accounts, the trial balance (post-closing) includes permanent ledger accounts, or we can say balance sheet accounts. After closing all temporary accounts and calculation the new balance of Retained Earnings account, the post-closing trial balance will be prepared for controlling purpose.

What Are Temporary Accounts in Accounting?

A simple difference between adjusted and unadjusted trial balances is the amounts in the adjusting entries. A listing of all of the accounts in the general ledger with account balances after the closing entries have been posted. This means that the listing would consist of only the balance sheet accounts with balances. The income statement accounts would not be listed because post closing trial balance they are temporary accounts whose balances have been closed to the owner’s capital account. A Post-closing Trial Balance lists all the balance sheet accounts with a non-zero balance at the end of a reporting period. Hence, Companies use this tool to ensure that all debit balances are equal to the total of all credit balances after an accountant passes closing 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.
• Therefore, it will not appear on any trial balances, including the adjusted trial balance, and will not appear on any of the financial statements.
• Accounts are credited to show an increase in revenue or liabilities.
• Both represent journal ledger accounts and essential bookkeeping information.
• Its purpose is to test the equality between debits and credits after closing entries are prepared and posted.

To get a zero balance in an expense account, the entry will show a credit to expenses and a debit to Income Summary. Printing Plus has $100 of supplies expense, $75 of depreciation expense–equipment, $5,100 of salaries expense, and $300 of utility expense, each with a debit balance on the adjusted trial balance. The closing entry will credit Supplies Expense, Depreciation Expense–Equipment, Salaries Expense, and Utility Expense, and debit Income Summary. The first entry closes revenue accounts to the Income Summary account. The second entry closes expense accounts to the Income Summary account. The third entry closes the Income Summary account to Retained Earnings. The fourth entry closes the Dividends account to Retained Earnings.

What Is Wrong if a Company Doesn’t Complete the Closing Entries?

The adjusted trial balances ensures that all credit and debit transactions are equal across all business accounts. The adjusted trial balance is also used to ensure a business is practicing accounting steps according to accounting standards and accurately reporting their financial statements. Post-closing trial balance – This is prepared after closing entries are made.