the post-closing trial balance helps to verify that

Your stockholders, creditors, and other outside professionals will use your financial statements to evaluate your performance. If you evaluate your numbers as often as monthly, you will be able to identify your strengths and weaknesses before any outsiders see them and make any necessary changes to your plan in the following month. Posting accounts to the post closing trial balance follows the exact same procedures as preparing the other trial balances. Each account balance is transferred from the ledger accounts to the trial balance.

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Like all trial balances, the post-closing trial balance has the job of verifying that the debit and credit totals are equal. The post-closing trial balance has one additional job that the other trial balances do not have. The post-closing trial balance is also used to double-check that the only accounts with balances after the closing entries are permanent accounts. If there are any temporary accounts on this trial balance, you would know that there was an error in the closing process. There are five sets of columns, each set having a column for debit and credit, for a total of 10 columns. The five column sets are the trial balance, adjustments, adjusted trial balance, income statement, and the balance sheet.

Income Statement and Balance Sheet

These adjusting entries include depreciation expenses, prepaid expenses, insurance expenses, and accumulated depreciation. Once your adjusting entries have been made, you’re ready to run your adjusted trial balance. 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 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.

the post-closing trial balance helps to verify that

The ninth, and typically final, step of the process is toprepare a post-closing trial balance. The word “post” in thisinstance means “after.” You are preparing a trial balanceafter the closing entries arecomplete. The unadjusted trial balance is the first trial balance that you’ll prepare, and it should be completed after all entries for the accounting period have been completed. A post-closing trial balance is, as the term suggests, prepared after closing entries are recorded and posted. It is the third (and last) trial balance prepared in the accounting cycle. You may notice that dividends are included in our 10-column worksheet balance sheet columns even though this account is not included on a balance sheet.

The Post-Closing Trial Balance

A post-closing trial balance is a report that is run to verify that all temporary accounts have been closed and their beginning balance reset to zero. 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. The next step is to record information in the adjusted trial balance columns.

  • 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.
  • When the post-closing trial balance is run, the zero balance temporary accounts will not appear.
  • The following is the Statement of Retained Earnings for Printing Plus.
  • All accounts with debit balances are listed on the left column and all accounts with credit balances are listed on the right column.
  • By summing the debits together, and the credits together, we see that each reconcile to $2,120 in August.
  • Accounts Payable ($500), Unearned Revenue ($4,000), Common Stock ($20,000) and Service Revenue ($9,500) all have credit final balances in their T-accounts.
  • Even if you’re using accounting software, running a trial balance can be important because it allows you to review account balances for accuracy.

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. Closing temporary accounts is an important step in the accounting cycle, and running the post-closing trial balance helps to make sure that the process has been completed accurately.

Correcting Errors in the Trial Balance

In the Printing Plus case, the credit side is the higher figure at $10,240. This means revenues exceed expenses, thus giving the company a net income. If the debit column were larger, this would mean the expenses were the post-closing trial balance helps to verify that 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.

Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career. For the past 52 years, Harold Averkamp (CPA, MBA) hasworked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online.

Frank’s Net Income and Loss

After the unadjusted trial balance is prepared and it appears error-free, a company might look at its financial statements to get an idea of the company’s position before adjustments are made to certain accounts. A more complete picture of company position develops after adjustments occur, and an adjusted trial balance has been prepared. These next steps in the accounting cycle are covered in The Adjustment Process. The last step in the accounting cycle (not counting reversing entries) is to prepare a post-closing trial balance.

the post-closing trial balance helps to verify that

By summing the debits together, and the credits together, we see that each reconcile to $2,120 in August. What do you do if you have tried both methods and neither has worked? Unfortunately, you will have to go back through one step at a time until you find the error. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License .