A Beginner’s Guide to the Post-Closing Trial Balance

Nominal accounts are those that are found in the income statement, and withdrawals. Finding discrepancies like this is why you created a trial balance, and discovering the error bookkeeper now can save you time and headaches later on. Accounting and bookkeeping professionals might use a trial balance to perform an internal audit of the company’s finances.

Bookkeepers and accountants use this report to consolidate all of the T-accounts into one document and double check that all transactions were recorded in proper journal entry format. As with all financial reports, trial balances are always prepared with a heading. Typically, the heading consists of three lines containing the company name, name of the trial balance, and date of the reporting period. These accounts carry their balances into the next accounting period and are used to prepare the financial statements.

If there is a difference between the two numbers, that difference is the amount of net income, or net loss, the company has earned. Each month, you prepare a trial balance showing your company’s position. After preparing your trial balance this month, you discover that it does not balance. The debit column shows $2,000 more dollars than the credit column.

The next two columns will include your credit and debit balances. In addition, any time you suspect an error in your books, you should quickly put together a trial balance to check that your debits and credits are correctly balanced. In Completing the Accounting Cycle, we continue our discussion of the accounting cycle, completing the last steps of journalizing and posting closing entries and preparing a post-closing trial balance. You will not see a similarity between the 10-column worksheet and the balance sheet, because the 10-column worksheet is categorizing all accounts by the type of balance they have, debit or credit.

Notice the net income of $4,665 from the income statement is carried over to the statement of retained earnings. Dividends are taken away from the sum of beginning retained earnings and net income to get the ending retained earnings balance of $4,565 for January. This ending retained earnings balance is transferred to the balance sheet. Because you made closing entries for revenue and expenses, those accounts do not appear on the post-closing trial balance. You’ll also notice that the owner’s capital account has a new balance based on the closing entries you made earlier. As you can see, the report has a heading that identifies the company, report name, and date that it was created.

BUS103: Introduction to Financial Accounting

Used to make sure that beginning balances are correct, the post-closing trial balance is also used to ensure that debits and credits remain in balance after closing entries have been completed. In a double-entry accounting system, you record your debits and credits in separate columns on your general ledger. For instance, you register a transaction when it occurs, then record the same transaction once you receive payment. The trial balance simply records all of the transactions listed in your general ledger accounts on a separate spreadsheet so you can ensure that your journal entries are balanced and accurate. Looking at the income statement columns, we see that all revenue and expense accounts are listed in either the debit or credit column. This is a reminder that the income statement itself does not organize information into debits and credits, but we do use this presentation on a 10-column worksheet.

• Moreover, many programs allow automizing a big chunk of this work and the bookkeeper just needs to review the information to ensure its accuracy.
• This check might reveal a basic manual data entry mistake or entries made in the wrong column or account.
• A post-closing trial balance aims to ensure that the company’s books are balanced and that all temporary accounts have been closed.
• Our state-of-the-art platform can help you automate your core processes to improve accuracy and efficiency — and even increase your bandwidth to help you scale your business.
• The more often you create trial balances, the greater your chances of catching small errors before they snowball into significant problems.

In this case we added a debit of $4,665 to the income statement column. This means we must add a credit of $4,665 to the balance sheet column. Once we add the $4,665 to the credit side of the balance sheet column, the two columns equal $30,140. 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.

Error

Bookkeepers typically scan the year-end trial balance for posting errors to ensure that the proper accounts were debited and credited while posting journal entries. Internal accountants, on the other hand, tend to look at global trends of each account. For instance, they might notice that accounts receivable increased drastically over the year and look into the details to see why. These accounts are closed at the end of the period by transferring their balances to the retained earnings account or other permanent accounts, such as the accumulated depreciation account.

Compare your debit and credit totals

While all of the adjusting entries for ABC Business are reflected in the adjusted trial balance, we still need to do some closing entries before running the post-closing trial balance. When the accounting system creates the initial report, it is considered an unadjusted trial balance because no adjustments have been made to the chart of accounts. This is simply a list of all the account balances straight out of the accounting system. After Paul’s Guitar Shop posted its closing journal entries in the previous example, it can prepare this 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.

Remember that closing entries are only used in systems using actual bound books made of paper. In any case, they are an important concept and they officially represent the end of the process. The post-closing trial balance for Printing Plus is shown in

Figure 5.8.

Tax accountants and auditors also use this report to prepare tax returns and begin the audit process. This article is not intended to provide tax, legal, or investment advice, and BooksTime does not provide any services in these areas. This material has been prepared for informational purposes only, and should not be relied upon for tax, legal, or investment purposes. BooksTime is not responsible for your compliance or noncompliance with any laws or regulations.

Unadjusted trial balance

If you’re not using accounting software, consider using a trial balance worksheet, which can be used to calculate account totals. That makes it much easier to create accurate financial statements. As the bookkeepers and accountants examine the report and find errors in the accounts, they record adjusting journal entries to correct them. After these errors are corrected, the TB is considered an adjusted trial balance. For instance, in our vehicle sale example the bookkeeper could have accidentally debited accounts receivable instead of cash when the vehicle was sold. The debits would still equal the credits, but the individual accounts are incorrect.

Now that the post closing trial balance is prepared and checked for errors, Paul can start recording any necessary reversing entries before the start of the next accounting period. 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. An adjusted trial balance is prepared after adjusting entries are made at the end of an accounting period.

What does a trial balance include?

In essence, the company’s
business is always in operation, while the accounting cycle
utilizes the cutoff of month-end to provide financial information
to assist and review the operations. If a trial balance is in balance, does this mean that all of the numbers are correct? It is important to go through each step very carefully and recheck your work often to avoid mistakes early on in the process. Another way to find an error is to take the difference between the two totals and divide by nine. If the outcome of the difference is a whole number, then you may have transposed a figure. For example, let’s assume the following is the trial balance for Printing Plus.

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