How to Do a Post-Closing Trial Balance

Use technology to handle repetitive calculations so you can focus on reviewing and analyzing results. It’s the step that makes sure your books don’t just “look right”, they are right. Once we are satisfied that everything is balanced, we carry the balances forward to the new blank pages of the next (now current) year’s ledger and are ready to start posting transactions. A defining characteristic of the post-closing trial balance is its selective inclusion of account types. After posting the above entries, all the nominal accounts would zero-out, hence the term “closing entries”. Now you will use a three-column trial balance sheet which should closely resemble this one.

• These are the accounts that still retain a balance after all temporary accounts have been closed to zero.
• At this point, the balance of the capital account would be 7,260 (13,200 credit balance, plus 1,060 credited in the third closing entry, and minus 7,000 debited in the fourth entry).
• Once we are satisfied that everything is balanced, we carry the balances forward to the new blank pages of the next (now current) year’s ledger and are ready to start posting transactions.
• The post-closing trial balance represents the final step in the accounting cycle, prepared after all temporary accounts have been closed.

Every account has a “normal” balance, meaning the side (Debit or Credit) where increases to that account are recorded. This concept is fundamental to double-entry accounting and dictates how transactions affect the accounting equation. The post-closing trial balance for Printing Plus is shown in Figure 5.8. In this case, accountants will need to review the closing entries once more to identify and fix and issue.

This measures the credits and debits of your remaining accounts that have a balance and checks to see if they still balance, which is one of the core principles of double-entry accounting. Go back through your adjusting entries, review your ledger postings, and track down the error. Catching mistakes here is much better than letting them carry over into your financial statements.

Liabilities: What You Owe

This document meets SEC rules and is clear about a company’s financial health. Good accounting keeps a business financially solid and ready for the future. It’s crucial to know all balance sheet accounts with balances that aren’t zero.

For example, consider a company that has just completed its fiscal year. The accountant prepares the post-closing trial balance and notices that the retained earnings account has increased significantly due to a profitable year. This increase will be carried over to the next fiscal year and can be used for reinvestment or distribution to shareholders. The post-closing trial balance thus provides a clear indication of the funds available for these purposes. If your trial balance doesn’t balance, review your closing entries and general ledger.

The Purpose of the Post-Closing Trial Balance

What’s left are the accounts that get reported on the balance sheet and their non-zero balances, which is called a post-closing trial balance. The balances of the nominal accounts (income, expense, and withdrawal accounts) have been absorbed by the capital account – Mr. Gray, Capital. Hence, you will not see any nominal account in the post-closing trial balance. Keeping accurate financial records keeps communication with stakeholders clear. It also boosts a company’s reputation for being financially transparent.

It also confirms the company’s financial status is calculated accurately. Like all financial reports, a post closing trial balance should be prepared with a heading. Equity represents the owner’s claim on the assets of the business after liabilities have been deducted. The relevant equity accounts are Owner’s Capital for sole proprietorships or Retained Earnings for corporations. This balance incorporates the net effect of the revenue, expense, and dividend accounts that were closed into it during the closing process. Take the time to reconcile key accounts, such as cash, receivables, and payables, before preparing the adjusted trial balance.

• We’ll equip you with a comprehensive, step-by-step guide, complete with downloadable samples and crystal-clear explanations.
• Think of it as building on the work you’ve already done with your unadjusted trial balance.
• The process underscores the importance of diligence and precision in the accounting profession, where even the smallest error can have a ripple effect on the overall financial health of an organization.
• However, a closer look reveals that this increase is not due to an increase in sales but rather a decrease in expenses, thanks to a one-time tax rebate.
• The quest for financial accuracy is paramount in accounting, yet common accounting mistakes often arise from a lack of understanding or diligence in these final, critical steps.

To help solidify your understanding, here is a clear, formatted sample Post-Closing Trial Balance with illustrative figures. This example demonstrates how various permanent accounts are listed, and their balances are correctly categorized as debits or credits, how to prepare post closing trial balance leading to a perfectly balanced total. The other two are the unadjusted and adjusted trial balances, both of which are prepared before the temporary accounts are closed out.

Students often ask why they need to do all of thesesteps by hand in their introductory class, particularly if they arenever going to be an accountant. If you havenever followed the full process from beginning to end, you willnever understand how one of your decisions can impact the finalnumbers that appear on your financial statements. You will notunderstand how your decisions can affect the outcome of yourcompany.