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What Goes In The Post Closing Trial Balance?

The completion of the post-closing trial balance means that all closing entries are posted, the old accounting period can close and the new accounting period can begin. 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. On the balance sheet, the credit balance in the Accumulated Depreciation does not come with the other credit balances. Rather, the credit balance in accumulated depreciation will be a deduction from the debit balance in the asset section .

The main purpose of the unadjusted trial balance is to test how equal the company’s debits and credits are before you account for any month-end adjustments. Once you’ve included all debits and credits, check to see if they match. If they don’t, you’ll likely need to do some research to find out why. You may need to add some debits or credits you’ve missed, or you may discover you’ve performed another action incorrectly. Since closing entries close all temporary ledger accounts, the post-closing trial balance consists of only permanent ledger accounts (i.e, balance sheet accounts). The purpose of preparing a post-closing trial balance is to assure that accounts are in balance and ready for recording transactions in the next accounting period. The income summary account is a temporary account into which all income statement revenue and expense accounts are transferred at the end of an accounting period.

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 debit. A post-closing trial balance is, as the term post closing trial balance suggests, prepared after closing entries are recorded and posted. A general ledger is the record-keeping system for a company’s financial data, with debit and credit account records validated by a trial balance.

Accounting Topics

If dividends are declared, to get a zero balance in the Dividends account, the entry will show a credit to Dividends and a debit to Retained Earnings. As you will learn in Corporation Accounting, there are three components to the declaration and payment of dividends. The first part is the date of declaration, which creates the obligation or liability to pay the dividend.

What is difference between trial balance and balance sheet?

The main difference between the trial balance and a balance sheet is that the trial balance lists the ending balance for every account, while the balance sheet may aggregate many ending account balances into each line item.

If the total debits equal the total credits, the trial balance is considered to be balanced, and there should be no mathematical errors in the ledgers. However, this does not mean there are no errors in a company’s accounting system. For example, transactions classified improperly or those simply missing from the system could still be material accounting errors that would not be detected by the trial balance procedure. Closing entries are dated as of the last day of the accounting period, but are entered into the accounts after the financial statements are prepared.

Other Types Of Trial Balances

We do not cover reversing entries in this chapter, but you might approach the subject in future accounting courses. DebitsDebit is an entry in the books of accounts, which either increases the assets or decreases the liabilities. According to the double-entry system, the total debits should always be equal to the total credits. The information in the unadjusted entries normally including company name, accounting period, account name, unadjusted amount, adjusting entries , and adjusting entries. 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.

If the general ledger system has a post closing trial balance feature, then preparing the report is straightforward. If the trial balance is prepared manually in Excel from spreadsheets, it typically takes time at the end of the accounting period to make the adjusting and closing entries, to produce the post closing entries. The amount of time is contingent on the complexity of the business and the experience of the preparer. The post-closing trial balance report lists down all the individual accounts after accounting for the closing entries. At this point in the accounting cycle, all the temporary accounts have been closed and zeroed out to permanent accounts.

Income Summary is then closed to the capital account as shown in the third closing entry. Having an up to date post-closing trial balance also helps in the adjustment of the accounts. Some of the examples are outstanding liabilities, prepaid expenses, closing stocks and so on. A company’s transactions are recorded in a general ledger and later summed to be included in a trial balance. Debits and credits of a trial balance being equal ensure there are no mathematical errors, but there could still be mistakes or errors in the accounting systems. A trial balance is a worksheet with two columns, one for debits and one for credits, that ensures a company’s bookkeeping is mathematically correct. There has been an error in journalizing the closing entries in the preceding step of the accounting cycle.

All of the above are used to test whether all debits equals all credits. It is shown as the part of owner’s equity in the liability side of the balance sheet of the company. 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.

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.

Asset accounts – asset accounts such as Cash, Accounts Receivable, Inventories, Prepaid Expenses, Furniture and Fixtures, etc. are all permanent accounts. The ninth, and typically final, step of the process is to prepare a post-closing trial balance.

Financial Accounting

Totals of both the debit and credit columns will be calculated at the bottom end of the post-closing trial balance. These columns should balance, otherwise, it would likely mean that there has been an error in posting of the adjusting entries. These ending balances will become opening balances for the next accounting period. In order for a company to be successful, it must monitor its finances and keep track of debits and credits. This helps company stakeholders and owners make strategic business decisions that can include anything from growing an area of the business to making a large equipment purchase to increase production. A post-closing trial balance is just one of the many statements and sheets that a financial professional will prepare for the business. The unadjusted trial balance is prepared after entries for transactions have been journalized and posted to the ledger.

The adjusted trial balance must have the total amount of the debit balances equal to the total amount of credit balances. Adjusting entries are accounting journal entries that convert a company’s accounting records to the accrual basis of accounting. An adjusting journal entry is typically made just prior to issuing a company’s financial statements. Permanent – balance sheet accounts including assets, liabilities, and most equity accounts. So, the ending balance of this period will be the beginning balance for next period. The complete accounting cycle includes all three trial balance reports, which include unadjusted trial balance, adjusted trial balance and post-closing trial balance.

Revenue, expense, and dividend accounts affect retained earnings and are closed so they can accumulate new balances in the next period, which is an application of the time period assumption. The expense accounts have debit balances so to get rid of their balances we will do the opposite or credit the accounts.

Accountants perform closing entries to return the revenue, expense, and drawing temporary account balances to zero in preparation for the new accounting period. The first entry closes revenue accounts to the Income Summary account.

Purpose Of The Post

This is no different from what will happen to a company at the end of an accounting period. A company will see its revenue and expense accounts set back to zero, but its assets and liabilities will maintain a balance. In summary, the accountant resets the temporary accounts to zero by transferring the balances to permanent accounts.

The next step of the accounting cycle is to prepare the reversing entries for the beginning of the next accounting cycle. The above-mentioned factors could be all those factors that result in the debit columns totals do not match with the credit column totals. Notice that the Income Summary account is now zero and is ready for use in the next period. The Retained Earnings account balance is currently a credit of $4,665. At this point, the accounting cycle is complete, and the company can begin a new cycle in the next period.

Requirements For A Trial Balance

Each entry causes a difference between the adjusted and post-closing trial balances. That way, you are prepared to enter accurate information into the financial statements.

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. The information needed to prepare closing entries comes from the adjusted trial balance. 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.

And just like any other trial balance, total debits and total credits should be equal. As we can see from the above example, the debit and the credit columns balances are matching. This means that there is no error while posting the closing entries to their individual accounts and then listing those account balances on the post-closing trial balance.

Just like with the unadjusted trial balance, the purpose of the adjusted trial balance is to see if the debits and credits are equal once you include all the adjusting entries. The unadjusted trial balance is the first trial balance you’ll need to prepare for the accounting period after you’ve recorded and posted all transactions to the ledger.

Temporary accounts are accounts whose balances are zeroed out at the end of each accounting period. When a new accounting period opens, these accounts are used again and will accrue balances until the accounting period comes to an end. At that time, the accounts will be closed to permanent accounts and once again have a zero balance. 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. It also verifies that debits still equal credit amounts after the closing entries, which ensures that you start the next accounting period with the correct amounts.

In automated systems such as those using accounting software, post closing entries may not be reviewed by accountants. Temporary accounts like revenues, expenses, and distributions have to be closed at the end of each accounting period to permanent accounts like assets, liabilities, and equity. The post closing trial balance lists all remaining accounts with balances after the closing entries have been posted to ensure that no temporary accounts still exist. The adjusted trial balance includes income from the current period. Closing entries reduce the income account to zero and transfer the balance to the income summary account.