Closing Entries and Post Closing Trial Balance
What is the purpose of the post-closing trial balance?
The post-closing trial balance’s goal is to make sure that the sum of all debits and credits equals itself, producing a net of zero. All temporary accounts are closed, the beginning balances are reset to zero, and the next accounting period can start when there is a net-zero post-closing trial balance.
However, you should review your entries if the debit and credit columns don’t equal each other as you might have forgotten to properly transfer one to or from the ledgers. The post-closing trial balance comes after the unadjusted and adjusted trial balances in the accounting cycle for a reporting period.
What is a post-closing trial balance?
An exhaustive list of the balance sheet accounts with a non-zero balance at the end of your reporting period is contained in a post-closing trial balance. These are temporary accounts that the company has already closed; the balances in these accounts have already been transferred to the retained earnings account throughout the account closing process.
The post-closing trial balance sheet does not include information about revenues, losses, or a summary account balance. Instead, any of those items that emerge following the completion of the closing process and the calculation of the post-closing trial balance will be transferred to the succeeding accounting period.
The post-closing trial balance sheet has columns that may include account numbers, account descriptions, debits, and credits as well as a header that includes the company name, the name of the trial balance, and the dates of the reporting period. At the bottom of the post-closing trial balance, in order of assets, liabilities, and equity, will be the total of all the debits and credits. The two totals should be equal. If they’re not, you might have prepared the sheet incorrectly or failed to account for all the line items if that’s the case.
Before setting up the account, the person in charge of adding up all the debits and credits in the report should make sure the two columns total the same amount to avoid more transactions coming through and applying to the previous accounting period.
Post-closing trial balance format
Similar to other trial balances in the accounting cycle, a post-closing trial balance is formatted with three columns: a column for account names, debits, and credits. Since this trial balance only contains balance sheet accounts, they are displayed in the balance sheet’s order of assets, liabilities, and equity.
The debit and credit columns of a trial balance are calculated at the bottom, just like the unadjusted and adjusted trial balances. The final amounts in both columns should be equal.
Other types of trial balances
You’ll use each of the three types of trial balances at various points throughout the entire accounting cycle. Besides the post-closing trial balance, there is:
Unadjusted trial balance
Once all transactions have been recorded and posted to the ledger, you will prepare the unadjusted trial balance as the first trial balance for the accounting period. Prior to making any month-end adjustments, its main objective is to determine whether the company’s debits and credits are equal. Once you’ve entered all of the debits and credits, make sure they all match. If not, you’ll probably need to conduct some research to learn why. You might need to add some missed debits or credits, or you might find that you did something else wrong.
Adjusted trial balance
An adjusted trial balance includes two types of accounts. The balance sheet’s list of withdrawals and the income statement both contain nominal accounts. Before closing the accounting period, double-check these areas to make sure you’ve included all the necessary adjusting entries. You are prepared to run the post-closing trial balance once you have included your adjusted entries and run the adjusted trial balance.
Post-closing trial balance example
You’ll include a header when creating the post-closing trial balance that includes the company name, the name you’re giving the balance sheet, and the end of the accounting period. Columns for the account title, debit totals, and credit amounts are listed below, and the total for the debit and credit columns is listed at the bottom.
Here is a full example of a post-closing trial balance:
FAQs about post-closing trial balance
Here are some of the most typical queries about post-closing trial balance along with their responses:
What do I do if the debits and credits columns dont match?
Your post-closing trial balance’s debit and credit columns may not match for a variety of reasons, but human error is the most frequent. You might have accidentally switched a debit from a credit column or vice versa, or you might have omitted one or more transactions from the report. Do your due diligence to determine why if your debits and credits don’t match. Debits and credits should always add up to the same total.
Are all three trial balance reports necessary?
Unadjusted trial balance, adjusted trial balance, and post-closing trial balance are all part of the full accounting cycle. Run the trial balance reports to confirm that every transaction has been accurately and fully recorded. Once they are, you are prepared for the start of the new accounting period.
What happens after the post-closing trial balance?
The old accounting period can be closed and the new accounting period can start once the post-closing trial balance is complete and all closing entries have been posted.
FAQ
What is Post-Closing trial balance?
All balance sheet accounts with non-zero balances at the end of a reporting period are listed in a post-closing trial balance. The post-closing trial balance is used to make sure that the sum of all debit balances and the sum of all credit balances, which should net to zero, equal each other.
Why is a Post-Closing trial balance performed?
The post-closing trial balance’s goal is to make sure that the sum of all debits and credits equals itself, producing a net of zero. All temporary accounts are closed, the beginning balances are reset to zero, and the next accounting period can start when there is a net-zero post-closing trial balance.
How is the post-closing trial balance different to the trial balance?
The post-closing trial balance is finished after closing entries and gets your accounts ready for the following period. The last trial balance prepared before the start of the new accounting period is known as a post-closing trial balance.
