A Beginner’s Guide to the Post-Closing Trial Balance
Steps 1 through 4 were covered in Analyzing and Recording Transactions and Steps 5 through 7 were covered in The Adjustment Process. Now that we have completed the accounting cycle, let’s take a look at another way the adjusted trial balance assists users of information with financial decision-making. At this point, the accounting cycle is complete, and the company can begin a new cycle in the next period.
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 how to make a post closing trial balance balance, you would know that there was an error in the closing process. A listing of all of the accounts in the general ledger with account balances after the closing entries have been posted. This means that the listing would consist of only the balance sheet accounts with balances.
Overview: What is a trial balance?
This gives you the balance to compare to the income statement, and allows you to double check that all income statement accounts are closed and have correct amounts. If you put the revenues and expenses directly into retained earnings, you will not see that check figure. No matter which way you choose to close, the same final balance is in retained earnings. To further clarify this concept, balances are closed to assure all revenues and expenses are recorded in the proper period and then start over the following period. The revenue and expense accounts should start at zero each period, because we are measuring how much revenue is earned and expenses incurred during the period.
Retained Earnings is the only account that appears in the closing entries that does not close. You should recall from your previous material that retained earnings are the earnings retained by the company over time—not cash flow but earnings. Now that we have closed the temporary accounts, let’s review what the post-closing ledger (T-accounts) looks like for Printing Plus.
What are your total expenses for rent, electricity, cable and internet, gas, and food for the current year? You have also not incurred any expenses yet for rent, electricity, cable, internet, gas or food. 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. The accounts that need to start with a clean or $0 balance going into the next accounting period are revenue, income, and any dividends from January 2019.
Service Revenue had a $9,500 credit balance in the trial balance column, and a $600 credit balance in the Adjustments column. To get the $10,100 credit balance in the adjusted trial balance column requires adding together both credits in the trial balance and adjustment columns (9,500 + 600). Once all accounts have balances in the adjusted trial balance columns, add https://personal-accounting.org/what-is-petty-cash/ the debits and credits to make sure they are equal. If you check the adjusted trial balance for Printing Plus, you will see the same equal balance is present. Notice that revenues, expenses, dividends, and income summary all have zero balances. The post-closing T-accounts will be transferred to the post-closing trial balance, which is step 9 in the accounting cycle.