In the first and second closing entries, the balances of Service Revenue and the various expense accounts were actually transferred to Income Summary, which is a temporary account. The Income Summary account would have a credit balance of 1,060 (9,850 credit in the first entry and 8,790 debit in the second). This is prepared after journalizing and uploading transactions to the ledger. Its objective is to verify the equality of debits and credits following the recording phase. After Paul’s Guitar Shop posted its closing journal entries in the previous example, it can prepare this post closing trial balance.
- Only permanent account balances should appear on the post-closing trial balance.
- A net-zero post-closing trial balance therefore indicates that all temporary accounts are closed, the beginning balances are back at zero, and the next accounting period can begin.
- Trial balance worksheets contain columns for income statements and balance sheet entries.
- This version contains the ending balances of all accounts in the general ledger, before any adjustments have been made to them with adjusting entries.
This is essential for owners and stakeholders who need the information to make strategic business decisions. The post-closing trial balance is only one of the many sheets and statements that must be completed. An accountant usually prepares the post-closing https://accounting-services.net/5-2-prepare-a-post-2/ trial balance sheets. However, in larger companies, an accountant may oversee other well-trained financial professionals who prepare these and other documents. All temporary accounts with zero balances were left out of this statement.
Liabilities
Accounting software requires that all journal entries balance before it allows them to be posted to the general ledger, so it is essentially impossible to have an unbalanced trial balance. Thus, the post-closing trial balance is only useful if the accountant is manually preparing accounting information. For this reason, most procedures for closing the books do not include a step for printing and reviewing the post-closing trial balance. It gets its name from the various general ledger account balances. Furthermore, it ensures that the sum of the debit and credit balances at the end is equal. If the trial balance contains equal debit and credit sides, the balance sheet will then balance.
- It gets its name from the various general ledger account balances.
- If there are any temporary accounts on this trial balance, you would know that there was an error in the closing process.
- The post-closing trial balance closure entries largely affect revenue and expense accounts.
The post-closing trial balance assists you in confirming that these accounts have no balances. It also ensures that after the closing entries, debits still equal credit amounts, ensuring that you begin the next accounting period with the correct amounts. The final step in the accounting cycle (excluding reversing entries) is to prepare a post-closing trial balance.
What is the difference between a trial balance and a post closing trial balance?
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Post-Closing Trial Balance Purpose
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 the posting of the adjusting entries. The revenue, expense, income summary, and owner’s drawing accounts will not be included on a post-closing trial balance since they have no balance after the accounting period has concluded. The post-closing trial balance closure entries largely affect revenue and expense accounts. Companies thus eliminate the payments with the post-closing trial balance.
Post Closing Trial Balance
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Module 4: Completing the Accounting Cycle
A post-closing trial balance is a report that lists the balances of all the accounts in a company’s general ledger after the closing entries have been posted. Another peculiar thing about Bob’s post-closing trial balance is that normally a retained earnings account will have a credit balance, but in Bob’s books, it has a debit balance. The reason is that Bob did not make a profit in the first month of his operations.
Once all closing entries are complete, the information is transferred to the general ledger and the post-closing trial balance is complete. The next step in the accounting cycle is to prepare the reversing entries for the beginning of the next accounting period. Preparing the post-closing trial balance will follow the same process that took to create the unadjusted or adjusted trial balance. Each account balance is transferred from their ledger accounts to the post-closing trial balance. All accounts with a debit balance will be listed on the debit side of the trial balance and all accounts with a credit balance will be listed on the credit side of the trial balance. When preparing the balance, include a heading that includes the company’s name, the name of the balance sheet, and the accounting period’s closing date.
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