What is the Post-closing Trial Balance?

Overview:

A post-closing trial balance is a financial statement that is prepared after all the adjusting entries have been made and the financial statements have been completed for a specific accounting period, such as a month, quarter, or year.

The post-closing trial balance lists all the accounts in the general ledger that have balances, including asset, liability, equity, revenue, and expense accounts. The purpose of the post-closing trial balance is to ensure that the total debits equal the total credits, which confirms that the accounting records are in balance and accurate.

The term “post-closing” refers to the fact that the trial balance is prepared after the closing entries have been made, which involves transferring the balances of temporary accounts (such as revenue and expense accounts) to the retained earnings account. This process resets the temporary accounts to zero and prepares them for the next accounting period.

The post-closing trial balance is an important tool for verifying the accuracy of the financial statements, as well as for preparing future financial reports and tax filings. It is also useful for identifying any errors or omissions that may have occurred during the accounting period, which can be corrected before the start of the next period.

Overall, the post-closing trial balance is an essential part of the accounting process that ensures the accuracy and completeness of a company’s financial records.

In the last step of the accounting cycle, the accountant requires to prepare the post-closing trial balance. This statement is prepared after the accountant makes all necessary adjustments to the general ledger and the adjusted trial balance, and all the suspended accounts are closed.

It is important to note that the post-closing trial balance contains only balance items accounts. Income statement items are temporary accounts and are not included in the post-closing trial balance.

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The primary purpose of preparing this post-closing trial balance is to ensure that all accounts are balanced and ready for recording the next period of financial transactions.

The main difference between the post-closing trial balance and the adjusted trial balance is that this statement contains the income statement accounts like revenues, expenses, and other gain or lost accounts.

The following infographic and explanation will help you to have a better understanding of this Post-closing trial balance.

Post-closing trial balance

Breakdown:

As you can see, the accountant or bookkeeper first needs to analyze the business transactions and then make the journal entries.

In this stage, the accountant might need to know the nature of transactions so that they could classify whether it is expenses, revenues, assets, or liabilities. Recording of those transactions should follow the role of debt and credit.

These journal entries are then posted into individual accounting ledgers in general ledgers. If the transaction affects the increase of assets, then it should be debited. If they are decreasing, then it should be recorded in credit.

All the financial transactions that occurred during the period need to be recorded in the account ledger-based nature and by respecting accounting principles as well as accounting standards that the entity is using. Two primary accounting standard is US GAAP and IFRS.

At the end of the period, all of the account ledgers need to close and then move to the unadjusted trial balance. This is to make sure that the entries that make to the account ledgers are correctly recorded.

The information in the unadjusted entries normally includes company name, accounting period, account name, unadjusted amount, adjusting entries ( adjustment), and adjusting entries.

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When the accountant reviews the ledger and unadjusted trial balance, some adjustments may require. All of the adjustments should be made to the ledgers and trial balance. Once the adjustments are completed, we then get the adjusted trial balance.

Once we get the adjusted trial balance, we then prepare the financial statements and all the suspended accounts need to be closed.

The last step of the accounting cycle is the post-closing trial balance.  This trial balance is prepared at the end of each accounting period and forwarded to the opening balance of the next period. This trial balance normally doesn’t have zero accounts.

What is the difference between a trial balance and a post-closing trial balance?

The trial balance and post-closing trial balance are both important financial statements used in accounting. The main difference between them is the timing of when they are prepared.

A trial balance is prepared during the accounting period, usually at the end of each month, quarter, or year. It is a list of all the general ledger accounts and their balances, including both debit and credit balances.

The purpose of the trial balance is to check the mathematical accuracy of the accounting records and ensure that the total debits equal the total credits. If they do not match, it indicates that there is an error in the accounting records that needs to be corrected.

On the other hand, a post-closing trial balance is prepared after the closing entries have been made, which involves transferring the balances of temporary accounts (such as revenue and expense accounts) to the retained earnings account.

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The post-closing trial balance lists all the accounts in the general ledger that have balances, including asset, liability, equity, revenue and expense accounts. The purpose of the post-closing trial balance is to ensure that the total debits equal the total credits, which confirms that the accounting records are in balance and accurate.

What are the purpose of the post-closing trial balance?

The purpose of the post-closing trial balance is to ensure the accuracy of the accounting records for a specific accounting period, typically a month, quarter or year. It is prepared after all adjusting entries have been made and financial statements have been completed.

The post-closing trial balance lists all the accounts in the general ledger that have balances, including asset, liability, equity, revenue, and expense accounts.

The main purposes of the post-closing trial balance are:

  1. To confirm that all temporary accounts (such as revenue and expense accounts) have been closed and their balances have been transferred to the retained earnings account.
  2. To ensure that the accounting records are in balance and that the total debits equal the total credits.
  3. To identify any errors or omissions that may have occurred during the accounting period, which can be corrected before the start of the next period.
  4. To provide a starting point for the next accounting period, as the balances in the post-closing trial balance become the opening balances for the next period.

Overall, the post-closing trial balance is an important tool for verifying the accuracy of the financial statements and for ensuring that the accounting records are complete and in balance. It helps to identify any errors or omissions and provides a starting point for the next accounting period.