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 balancesDebit BalancesIn a General Ledger, when the total credit entries are less than the total number of debit entries, it refers to a debit balance. A debit balance is a net amount often calculated as debit minus credit in the General Ledger after recording every transaction. 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 accountRetained Earnings AccountRetained Earnings are defined as the cumulative earnings earned by the company till the date after adjusting for the distribution of the dividend or the other distributions to the investors of the company. It is shown as the part of owner’s equity in the liability side of the balance sheet of the company..
Why do you need Post-Closing Trial Balance?
There are three types of trial balance in accounting. They are an unadjusted trial balanceAn Unadjusted Trial BalanceAn unadjusted trial balance is the account balances reported directly from the general ledger without adjusting for the year-end journal entries. It acts as a starting point for analyzing account balances and adjusting entries., 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 balanceAdjusted Trial BalanceAdjusted Trial Balance is a statement which incorporates all the relevant adjustments. Although it is not a part of financial statements, the adjusted balances are carried forward in the different reports that form part of financial statements. contains nominal and real accounts. Nominal accounts are those which have entries from the income statement, and real accountsReal AccountsReal accounts do not close their balances at the end of the financial year but retain and carry forward their closing balance from one accounting year to another. In other words, the closing balance of these accounts in one accounting year becomes the opening balance of the succeeding accounting year. are those which have entries from the balance sheet.
- The post-closing trial balance is used to check the debitsDebitsDebit is an entry in the books of accounts, which either increases the assets or decreases the liabilities. According to the double-entry system, the total debits should always be equal to the total credits. 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 balancesCredit BalancesCredit Balance is the capital amount that a company owes to its customers & it is reflected on the right side of the General Ledger Account. Usually, Liability accounts, Revenue accounts, Equity Accounts, Contra-Expense & Contra-Asset accounts tend to have the credit balance. .
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 softwareVarious Accounting SoftwareWave Accounting Software, Akaunting Software, Slick Pie Accounting Software, GnuCash Accounting Software, xTuplePostBoks Accounting Software, Inv24 Accounting and Inventory Software, and NCH Express Accounts Accounting Software are among the best accounting softwares available. 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 reportsFinancial ReportsFinancial Reporting is the process of disclosing all the relevant financial information of a business for a particular accounting period. These reports are used by the stakeholders (investors, creditors/ bankers, public, regulatory agencies, and government) to make investing and other relevant decisions. , 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 –