The ninth, and typically final, step of the process is to prepare a post-closing trial balance. The word “post” in this instance means “after.” You are preparing a trial balance after the closing entries are complete. After Paul’s Guitar Shop posted its closing journal entries in the previous example, it can prepare this post closing trial balance. Since only balance sheet accounts are listed on this trial balance, they are presented in balance sheet order starting with assets, liabilities, and ending with equity.
Looking at the asset section of the balance sheet, Accumulated Depreciation–Equipment is included as a contra asset account to equipment. The accumulated depreciation ($75) is taken away from the original cost of the equipment ($3,500) to show the book value of equipment ($3,425). The accounting equation is balanced, as shown on the balance sheet, because total assets equal $29,965 as do the total liabilities and stockholders’ equity. At the bottom of the debit balance and credit balance columns will be a total for each. When accounting software is used, the totals should always be identical.
If the debit column were larger, this would mean the expenses were larger than revenues, leading to a net loss. You want to calculate the net income and enter it onto the worksheet. The $4,665 net income is found by taking the credit of $10,240 and subtracting the debit of $5,575. When entering net income, it should be written in the column with the lower total. You then add together the $5,575 and $4,665 to get a total of $10,240. If you review the income statement, you see that net income is in fact $4,665.
A post-closing trial balance is a trial balance which is prepared after all of the temporary accounts in the general ledger have been closed. The ninth, and typically final, step of the process is to
prepare a post-closing trial balance. The word “post” in this
instance means “after.” You are preparing a trial balance
after the closing entries are
An example of a post-closing trial balance
As with the trial balance, the purpose of the post-closing trial balance is to ensure that debits equal credits. A post-closing trial balance is a listing of all balance sheet accounts containing non-zero balances at the end of a reporting period. The post-closing trial balance is used to verify that the total of all debit balances equals the total of all credit balances, which should net to zero.
- In other words, the post closing trial balance is a list of accounts or permanent accounts that still have balances after the closing entries have been made.
- Reversing entries reverse an adjusting entry made in a prior period at the start of a new period.
- When you prepare a balance sheet, you must first have the most updated retained earnings balance.
- The debit column shows $2,000 more dollars than the credit column.
- For example, if you determine that the final debit balance is $24,000 then the final credit balance in the trial balance must also be $24,000.
Next you will take all of the figures in the adjusted trial balance columns and carry them over to either the income statement columns or the balance sheet columns. Finally, when the new accounting period is about to begin, you would run the post-closing trial balance, which reflects your totals going forward into the new accounting period. All trial balance reports are run to make sure that debits and credits remain in balance.
Unearned revenue had a credit balance of $4,000 in the trial balance column, and a debit adjustment of $600 in the adjustment column. Remember that adding debits and credits is like adding positive and negative numbers. This means the $600 debit is subtracted from the $4,000 credit to get a credit balance of $3,400 that is translated to the adjusted trial accounts payable days formula balance column. The 10-column worksheet is an all-in-one spreadsheet showing the transition of account information from the trial balance through the financial statements. Accountants use the 10-column worksheet to help calculate end-of-period adjustments. Using a 10-column worksheet is an optional step companies may use in their accounting process.
The post-closing trial balance is the final step in the accounting cycle
(Figure)Identify which of the following accounts would not be listed on the company’s Post-Closing Trial Balance. (Figure)Identify whether each of the following accounts would be listed in the company’s Post-Closing Trial Balance. The post-closing trial balance for Printing Plus is shown in (Figure). If a trial balance is in balance, does this mean that all of the numbers are correct?
If you have
never followed the full process from beginning to end, you will
never understand how one of your decisions can impact the final
numbers that appear on your financial statements. You will not
understand how your decisions can affect the outcome of your
company. Preparing an unadjusted trial balance is the fourth step in the accounting cycle.
If there are any temporary accounts on this trial balance, you would know that there was an error in the closing process. Many students who enroll in an introductory accounting course do not plan to become accountants. They will work in a variety of jobs in the business field, including managers, sales, and finance. Accounting software can perform such tasks as posting the journal entries recorded, preparing trial balances, and preparing financial statements.
The Importance of Understanding How to Complete the Accounting
For example, an unadjusted trial balance is always run before recording any month-end adjustments. Once the adjustments have been posted, you would then run an adjusted trial balance. You have been exposed to the concepts of recording and journalizing transactions previously, but this explains the rest of the accounting process. The accounting cycle is the repetitive set of steps that must occur in every business every period in order to meet reporting requirements.
If the final balance in the ledger account (T-account) is a credit balance, you will record the total in the right column. It is worth mentioning that there is one step in the process that a company may or may not include, step 10, reversing entries. Reversing entries reverse an adjusting entry made in a prior period at the start of a new period. We do not cover reversing entries in this chapter, but you might approach the subject in future accounting courses.
6 Prepare a Trial Balance
The debit column shows $2,000 more dollars than the credit column. Transferring information from T-accounts to the trial balance requires consideration of the final balance in each account. If the final balance in the ledger account (T-account) is a debit balance, you will record the total in the left column of the trial balance.
Unlike previous trial balances, the retained earnings figure is included, which was obtained through the closing process. Since temporary accounts are already closed at this point, the post-closing trial balance will not include income, expense, and withdrawal accounts. It will only include balance sheet accounts, a.k.a. real or permanent accounts. The last step in the accounting cycle (not counting reversing entries) is to prepare a post-closing trial balance. They are prepared at different stages in the accounting cycle but have the same purpose – i.e. to test the equality between debits and credits. 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.
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