Trial Balance Definition, Unadjusted, Adjusted and Post Closing

post-closing trial balance definition

In the accounting cycle, there are two other trial balances that are prepared. This report lists all the accounts that a company has and their balances. The next one is called the adjusted trial balance and is a list of all the company accounts and their balances after any adjustments have been made.

Thus, it provides the summary of your general ledger accounts as it showcases the accounts and their balances. So, your financial transactions are recorded accurately in the general ledger accounts if the debit column of your equates to its credit column. In other words, your accounts have been balanced out correctly arithmetically. The post-closing trial balance is a report that is created to verify all of a company’s temporary accounts are closed and their new beginning balance has been reset to zero. For companies that use accounting software, this will be done automatically.

Undetectable Errors in a Trial Balance

The equity is calculated by subtracting the liabilities total from the assets total. The post-closing trial balance proves debits still equal credits after the closing entries have been made. Do you notice that not all accounts show up on the post-closing trial balance? The answer is because only the permanent accounts of a company show up on the report. At the bottom of the debit balance and credit balance columns will be a total for each. When accounting software is used, the totals should always be identical.

post-closing trial balance definition

It will only include general ledger balance sheet accounts with balances other than zero. The purpose of a post-closing trial balance is to check debits and credits after the closing entries have been made. The post-closing trial balance should only include balance sheet accounts because all income statement accounts have been closed and their balances should be zero. At the end of an accounting period, the accounts of asset, expense, or loss should each have a debit balance, and the accounts of liability, equity, revenue, or gain should each have a credit balance.

How does a Post Closing Trial Balance work?

You have been exposed to the concepts of recording and journalizing transactions previously, but this explains the rest of the accounting process. The accounting cycle is the repetitive set of steps that must occur in every business every period in order to meet reporting requirements. Debits and credits of a trial balance must tally to ensure that there are no mathematical errors. However, there still could be mistakes or errors in the accounting systems.

On top of that, it offers the same features as the traditional trial balance. With this version, companies can also ensure their closing balance match. The post-closing trial balance is crucial in transitioning into the upcoming accounting period. The unadjusted trial balance is prepared before adjusting journal entries are completed. This trial balance reflects all the activity recorded from day-to-day transactions and is used to analyze accounts when preparing adjusting entries. For example, if you know that the remaining balance in prepaid insurance should be $600, you can look at the unadjusted trial balance to see how much is currently in the account.

The Post-Closing Trial Balance

However, in larger companies, an accountant may oversee other well-trained financial professionals who prepare these and other documents. The post-closing trial balance is the last trial balance to be prepared before the next accounting period begins. It is useful for making sure the next period’s beginning balances are accurate.

post-closing trial balance definition

Once the adjustments have been posted, you would then run an adjusted trial balance. Since there are several types of errors that trial balances fail to uncover, each closing entry must be journalized and posted carefully. A trial balance is a listing of a company’s accounts and balances. This report may not be the most exciting output of a small business accounting system, but it gives the user a full glimpse of the company’s business activity law firm bookkeeping over the last year. While the format of the trial balance is pretty standard, by understanding what will remain the same and what changes are ahead, small business owners can create a trial balance that is standard in practice. When creating a trial balance for 2 months, e.g Jan & Feb, will the closing balances of the accounts for Jan, carry over to Feb or is each trial balance specific to the transactions that occurred in a month.

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