5 2 Prepare a Post-Closing Trial Balance Principles of Accounting, Volume 1: Financial Accounting

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. 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. 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. The trial balance worksheet contains columns for both income statement and balance sheet entries, allowing you to easily combine multiple entries into a single amount.

If both summarize your income in the same period, then they must be equal. The eighth step in the accounting cycle is preparing closing entries, which includes journalizing and posting the entries to the ledger. Companies are required to close their books at the end of each fiscal year so that they can prepare their annual financial statements and tax returns. In this chapter, we complete the final steps (steps 8 and 9) of the accounting cycle, the closing process. This is an optional step in the accounting cycle that you will learn about in future courses.

Unadjusted trial balance

This is no different from what will happen to a company at the end of an accounting period. A company will see its revenue and expense accounts set back to zero, but its assets and liabilities will maintain a balance. In summary, the accountant resets the temporary accounts to zero by transferring the balances how to make a post closing trial balance to permanent accounts. The post-closing trial balance, the last step in the accounting cycle, helps prepare your general ledger for the new accounting period. It closes out balances in both expense and revenue accounts, which allows you to start tracking these totals again in the new accounting period.

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. The purpose of closing entries is to close all temporary accounts and adjust the balances of real accounts such as owner’s capital.

Module 4: Completing the Accounting Cycle

To determine the income (profit or loss) from the month of January, the store needs to close the income statement information from January 2019. The unadjusted trial balance is your first look at your debit and credit balances. If not, you’ll have to do some research to locate and correct any errors. 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.

Ending retained earnings information is taken from the statement of retained earnings, and asset, liability, and common stock information is taken from the adjusted trial balance as follows. An income statement shows the organization’s financial performance for a given period of time. When preparing an income statement, revenues will always come before expenses in the presentation. For Printing Plus, the following is its January 2019 Income Statement.

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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. Before you can run a post-closing trial balance, you’ll have to make sure that all of your adjusting journal entries have been entered. For example, an unadjusted trial balance is always run before recording any month-end adjustments. Once https://personal-accounting.org/how-to-prepare-accounts-receivable-aging-reports/ the adjustments have been posted, you would then run an adjusted trial balance. If you’re tired of tracking income and expenses using spreadsheet software, be sure to check out The Ascent’s accounting software reviews, and find an application that will work for you. The trial balance is used to ensure that the ending total of all debits recorded in your general ledger equals the ending total of all credits that are recorded.

• For example, Celadon Group misreported revenues over the span of three years and elevated earnings during those years.
• The balance sheet is going to include assets, contra assets, liabilities, and stockholder equity accounts, including ending retained earnings and common stock.
• Permanent (real) accounts are accounts that transfer balances to the next period and include balance sheet accounts, such as assets, liabilities, and stockholders’ equity.
• Many students who enroll in an introductory accounting course do not plan to become accountants.
• Companies are required to close their books at the end of each fiscal year so that they can prepare their annual financial statements and tax returns.
• This means that the current balance of these accounts is zero, because they were closed on December 31, 2018, to complete the annual accounting period.

If there is a difference between the two numbers, that difference is the amount of net income, or net loss, the company has earned. 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. 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 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.

Thus, the post-closing trial balance is only useful if the accountant is manually preparing accounting information. For this reason, most procedures for closing the books do not include a step for printing and reviewing the post-closing trial balance. The first entry requires revenue accounts close to the Income Summary account. To get a zero balance in a revenue account, the entry will show a debit to revenues and a credit to Income Summary. Printing Plus has $140 of interest revenue and $10,100 of service revenue, each with a credit balance on the adjusted trial balance.