Overview:
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.
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 post-closing trial balance and 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.
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.
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.
