What is Post Closing Trial Balance?
Post Closing Trial Balance is the list of the all the balance sheet items along with their balances excluding the zero balance accounts and is used for the purpose of verification that temporary accounts are properly closed and the total of balances of all the debit accounts and all the credit accounts are equal.
Post-Closing Trial Balance is an accuracy check that is done to verify that all debit balances equal all credit balances, and hence net balance should be zero. It presents a list of accounts and their balances after closing entries have been written and posted in the ledger.
Also, it determines whether any balances are remaining in the permanent accounts after closing entries have been journalized. It contains no sales revenue entries, no expense journal entries, no gain or loss entries, etc. since these are determined to be temporary accounts. As part of the closing process, the balances in these move to the retained earnings account.
Why do you need Post-Closing Trial Balance?
There are three types of trial balance in accounting. They are an unadjusted trial balance, adjusted trial balance, and post-closing trial balance. All of the above are used to test whether all debits equals all credits.
- The unadjusted trial balance is prepared after entries for transactions have been journalized and posted to the ledger.
- An adjusted trial balance contains nominal and real accounts. Nominal accounts are those which have entries from the income statement, and real accounts are those which have entries from the balance sheet.
- The post-closing trial balance is used to check the debits and credits after closing entries for transactions have been made.
Then the job of the accountant is to determine whether there is a zero net balance, i.e., all debit balances equal all credit balances. Then the accountant raises a flag to make sure that no further transactions are being recorded for the old accounting period. Hence, any additional transactions are recorded for the next accounting period. As mentioned above, it ensures that no temporary accounts are remaining and all debit balances equal all credit balances.
It has a similar format to other trial balances. It contains columns for the account number, account description, debits, and credits for any business or firm. Various accounting software makes it mandatory that all journal entries must be balanced before allowing them to be posted to the general ledger. Hence it is improbable to have an unbalanced trial balance.
As balance sheet entries are listed in the trial balance, it is done in similar ways balance sheet with first assets than liabilities and then equity. Both the debits and credits totals are calculated at the end, and if these are not equal, one can know that there must have been some mistake in preparing the trial balance.
Similar to the financial reports, trial balances are prepared with three headings, which lists the company name, type of trial balance, and ending date of the reporting period.
Example of Post-Closing Trial Balance
Let’s take an example for a company XYZ.
This article has been a guide to Post Closing Trial Balance. Here we discuss the format of the Post-Closing Trial Balance (account number, account description, debit, credit) and its examples. You can learn more about from the following articles –