Post-Closing Trial Balance Video Tutorial & Practice

How To Prepare A Post Closing Trial Balance

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  • As the accountant prepares the income statement, she uses the expense balances from the accounting records.
  • The second part is the date of record that determines who receives the dividends, and the third part is the date of payment, which is the date that payments are made.
  • Double entry is an accounting term stating that every financial transaction has equal and opposite effects in at least two different accounts.
  • This trial balance does not include any gain, loss, or summary accounts balance as these are temporary accounts, and the balances in these accounts move to the retained earnings account.
  • Once the adjustments have been posted, you would then run an adjusted trial balance.

When all accounts have been recorded, total each column and verify the columns equal each other. 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.

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A Post-closing Trial Balance lists all the balance sheet accounts with a non-zero balance at the end of a reporting period. Hence, Companies use this tool to ensure that all debit balances are equal to the total of all credit balances after an accountant passes closing entries. To know how much your revenue and expenses were for a specific period, you need to start the period with https://online-accounting.net/ a zero balance in your revenue and expense accounts. The post-closing trial balance helps you verify that these accounts have zero balances. It also verifies that debits still equal credit amounts after the closing entries, which ensures that you start the next accounting period with the correct amounts. The post-closing trial balance will never contain temporary accounts.

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The Post-Closing Trial Balance

Preparing a post-closing trial balance is an important step in the accounting cycle. Used to make sure that beginning balances are correct, the post-closing trial balance is also used to ensure that debits and credits remain in balance after closing entries have been completed. At closing day of fiscal year, the business transfers temporary account balances to the permanent owner’s equity account or capital account. Closing entries formally recognize in the ledger the transfer of net profit and owner’s drawings to owner’s equity account. Important to note here that the temporary accounts or nominal account, or , which are closed at the end year are not exposed on the post-closing trial balance. It is important to understand retained earnings is not closed out, it is only updated. Retained Earnings is the only account that appears in the closing entries that does not close.

Having an up-to-date post-closing trial balance also helps in the adjustment of the accounts. Some examples are outstanding liabilities, prepaid expenses, closing stocks, etc. Transfer the balance of the revenue account to the Income Summary Account. Transfer the expense account balances to the Income Summary Account. Transfer the balance of the Income Summary account to the owner’s capital account 4. Transfer the balance of the drawing account to the owner’s capital account.



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