The general ledger is a central location for recording all of the financial activity for your business. Accurate ledger activity is essential to ensuring that the financial statements for each period are correct before filing statements with the Internal Revenue Service. A trial balance is the first place to start during your closing process to identify closing entries and accuracy concerns. You need to know what to include in your trial balance to ensure that your reports are complete. Show
Trial Balance AmountsThe trial balance is a report of every ledger account with a running balance for the time period selected. When transactions post to the ledger properly, your debit balances equal the credit balances, producing a net of zero. Use the trial balance report to ensure that your ledger is accurate or to identify necessary adjusting entries to correct account balances. For example, if you pay your rent, you enter the amount you owed ($1,000) as a debit, then the amount you paid as a credit ($1,000). Accounts OmittedThe trial balance is not impacted by any account that has a zero balance. Accounts without a running balance are left out of the trial balance report to save space and confusion. When an account is adjusted to a zero balance after the adjusting entries are completed, remove it from the adjusted trial balance report. If you pay commissions, for example, and none are paid during this period, you might omit the commissions category from the document, rather than including it with zero income and expense entries. Post-Closing Trial BalanceThe post-closing trial balance is created after the closing process is complete. The post-closing balance includes only balance sheet accounts. You should not include income statement accounts such as the revenue and operating expense accounts. Other accounts such as tax accounts, interest and donations do not belong on a post-closing trial balance report. Finding ErrorsIf your trial balance report does not balance, review the accounts on the report to be sure you have all of your active accounts. If you are certain all of the accounts with a balance appear on the report, review each individual account to verify that the balance matches the ledger. Check your journal entries to be sure each one posted correctly, and review the transaction histories to be sure that there are no double-posted entries as well. To avoid missing entries because you've looked at them the same way multiple times, review your numbers from the top of the page down, then from the bottom of the page up. Sometimes an error will occur because you made a mistake with only one transaction. To find the error, look only in the number columns for that exact amount. 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. Therefore, a post-closing trial balance will include a list of all permanent accounts that still have balances. This will be identical to the items appearing on a balance sheet. The Accounting Cycle ExampleThroughout this series on the accounting cycle, we will look at an example business, Bob’s Donut Shoppe, Inc., to help understand the concepts of each part of the accounting cycle. Below is the complete list of accounting cycle tutorials:
We also have an accompanying spreadsheet that shows you an example of each step. Click here to download the Accounting Cycle template The accounting cycle up till now already has seen the preparation of an unadjusted trial balance and an adjusted trial balance. Therefore, one might ask about the need of preparing yet another trial balance- the post-closing trial balance. There can be various reasons for preparing a post-closing trial balance. Some of them are listed below:
Format of a Post-Closing Trial BalanceA post-closing trial balance will be formatted the same as the other two types of trial balances that have already been discussed. It will have three columns (account names, debit and a credit column). Like an unadjusted or an adjusted trial balance, it will have accounts listed in order of either their account numbers or in the order they appear on the balance sheet. The order that will follow will be assets first, then liabilities and finally ending off with equity. 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 adjusted trial balance should have a proper header that should be in a similar format as below: Company A PreparationPreparing 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. The difference between the unadjusted trial balance and the adjusted trial balance is the adjusting entries that are required to align the company accounts for the matching principle. Whereas, the difference between an adjusted trial balance and a post-closing trial balance is the closing entries that are required to close off the temporary accounts and transfer their balances to the permanent accounts so that they can be listed on the balance sheet. Common ErrorsSome common errors occur while creating the post-closing trial balance. Some of them are:
The above-mentioned factors could be all those factors that result in the debit columns totals do not match with the credit column totals. Example of a Closing Trial BalanceCompany A prepares the following post-closing trial balance report after posting the closing entries:  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. Another thing to observe is that as expected we do not see any temporary account balances in the post-closing trial balance. All the revenue and expense accounts have successfully been closed out into an income summary account and then the income summary account balance has also been transferred to retained earnings account. The retained earnings account is a new permanent account listed on this trial balance which you won’t find in the trial balances (adjusted and unadjusted) that preceded the post-closing trial balance. Bob’s Donut Shoppe, Inc ExampleContinuing with Bob and his company, Bob’s Donut Shoppe, Inc., we need to post the closing entries to their relevant individual accounts and then list them on the post-closing trial balance. Bob’s closing trial balance should look something like this: We can observe the difference between the adjusted trial balance and the post-closing trial balance. All the temporary accounts like revenue and expense accounts have been closed out into the retained earnings account via the income summary account (as previously explained). 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. In fact, he made a net loss totaling $6,050. Next StepThe next step of the accounting cycle is to prepare the reversing entries for the beginning of the next accounting cycle. FAQs1. What is a post-closing trial balance?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. 2. What is the purpose of a post-closing trial balance?The purpose of a post-closing trial balance is to ensure that all the individual account balances match the debit and credit columns. This report is used to identify any errors that may have been made while posting the closing entries. 3. How do you prepare the after closing trial balance?Preparing the post-closing trial balance will follow the same process as the adjusted trial balance, but with one additional step. The closing entries will need to be posted to their respective accounts and then listed on the post-closing trial balance. 4. What happens after the post-closing trial balance?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. 5. What is the difference between a trial balance and a post closing trial balance?The main difference between a trial balance and a post-closing trial balance is that the post-closing trial balance includes the balances of all accounts in the general ledger, while the trial balance only includes the balances of those accounts that have been adjusted. Additionally, the post-closing trial balance will have a retained earnings account which contains the balances of all temporary accounts that have been closed out. What does the PostThe post-closing trial balance sheet includes a header that lists the company name, name of the trial balance and the dates of the reporting period as well as columns that may include account numbers, account descriptions, debits and credits.
Which account would not be contained on a postExplanation: Accounts that are closed at the conclusion of the accounting period are considered temporary accounts and do not appear in the post-closing trial balance.
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