Post closing trial balance

Post closing trial balance
See also

A post-closing (or after-closing) trial balance includes the balances of permanent accounts which are carried forward to the next accounting period. As for the aim of such trial balance, it is to demonstrate balances’ equality. The accounts which constitute a post-closing trial balance are called permanent accounts, balance sheet accounts or real accounts [1].

After recording and posting the closing entries, the permanent accounts should be equal. The reason why the post-closing trial balance comprises only of permanent balance sheet accounts (such as assets, liabilities and equity/owner's capital) is that all temporary accounts should have zero balances [2].

The goal of the post-closing trial balance is to examine whether the ledger at the beginning of the next accounting period is in balance. The content of the post-closing trial balance i.e. the accounts and figures should accurately match the amounts presented on the end-of-a-period balance sheet [3].

Accounting cycle

The whole process of analyzing, journalizing transactions and finally, preparing post-closing trial balance is termed as the accounting cycle.

The following stages can be distinguished during the cycle [4]:

  1. analysis and recording of transactions in the journal
  2. posting transactions to the ledger
  3. preparation of an unadjusted trial balance
  4. assembly and analysis of adjustment data
  5. preparation of an optional end-of-period spreadsheet
  6. journalizing and posting adjusting entries to the ledger
  7. preparation of an adjusted trial balance
  8. preparation of financial statements
  9. journalizing and posting closing entries to the ledger
  10. preparation of a post-closing trial balance

After posting the closing entries, in order to finalize the closing process, all the temporary accounts (like income summary, revenue, expense and drawing) are double-underlined [5].

The steps in the cycle are performed respectively and repeated in each accounting period [6].

The purpose of a post-closing trial balance

The main aim of preparing a post-closing trial balance is to verify whether the company has journalized and posted all closing entries correctly. Furthermore, it also proves the balance of the accounting equation at the end of the accounting period (debit side equals credit side). Yet, it cannot be assumed that the company has posted all transactions and the ledger has been completed. Even if a transaction has not been posted or has been posted twice, still the post-closing balance will remain in balance. Consequently, the ledger would not be entirely correct [7].

What needs to be underlined is that total debits in an after-closing trial balance will not be equal to total assets on the balance sheet. Such a situation occurs because accumulated depreciation is deducted from assets on the balance sheet, however, it is added to the total credits in a post-closing trial balance [8].

Footnotes

  1. Weygandt J.J., Kimmel P.D., Kieso D.E. 2010, Chapter 4, 4-13
  2. Weygandt J.J., Kimmel P.D., Kieso D.E. 2009, pp. 161-164
  3. Warren C.S., Reeve J.M., Duchac J. 2011, p. 159
  4. Warren C.S., Reeve J.M., Duchac J. 2011, p. 159
  5. Weygandt J.J., Kimmel P.D., Kieso D.E. 2018, pp. 4-16, 4-17
  6. Weygandt J.J., Kimmel P.D., Kieso D.E. 2009, pp. 161-164
  7. Weygandt J.J., Kimmel P.D., Kieso D.E. 2009, pp. 161-164
  8. Weygandt J.J., Kieso D.E., DeFranco A.L., Kimmel P.D. 2005, p. 155

References

Author: Paulina Zachara