5 2 Prepare a Post-Closing Trial Balance Principles of Accounting, Volume 1: Financial Accounting
Keep in mind that all of the accounts in your general ledger will be included in your trial balance, so the more accounts you have set up, the longer your report will be. The purpose of a trial balance is to ensure that all debit transactions entered into the general ledger equal all of the credit transactions that have been entered. Another way to find an error is to take the difference between the two totals and divide by nine. If the outcome of the difference is a whole number, then you may have transposed a figure.
It is important to go through each step very carefully and recheck your work often to avoid mistakes early on in the process. Both US-based companies and those headquartered in other countries produce the same primary financial statements—Income Statement, Balance Sheet, and how to make a post closing trial balance Statement of Cash Flows. Notice that the Income Summary account is now zero and is ready for use in the next period. The Retained Earnings account balance is currently a credit of $4,665. The third entry requires Income Summary to close to the Retained Earnings account.
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Instead, they are accounting department documents that are not distributed. While using accounting software drastically reduces the need for the trial balance report, these reports can still be useful in many ways. It’s also important to remember that the trial balance is designed to provide ending balances only, and is not used to determine https://personal-accounting.org/bond-definition/ the accuracy of the transactions that are included in the ending balance. One way to find the error is to take the difference between the two totals and divide the difference by two. Printing Plus has a $4,665 credit balance in its Income Summary account before closing, so it will debit Income Summary and credit Retained Earnings.
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. It is worth mentioning that there is one step in the process that a company may or may not include, step 10, reversing entries. Reversing entries reverse an adjusting entry made in a prior period at the start of a new period.
An example of a post-closing trial balance
Therefore, these accounts still have a balance in the new year, because they are not closed, and the balances are carried forward from December 31 to January 1 to start the new annual accounting period. The unadjusted trial balance is the first report that you will run. This shows the ending balances in all of your general ledger accounts before any adjusting entries are completed. If you look in the balance sheet columns, we do have the new, up-to-date retained earnings, but it is spread out through two numbers. If you combine these two individual numbers ($4,665 – $100), you will have your updated retained earnings balance of $4,565, as seen on the statement of retained earnings.
Our discussion here begins with journalizing and posting the closing entries (Figure 5.2). These posted entries will then translate into a post-closing trial balance, which is a trial balance that is prepared after all of the closing entries have been recorded. Next will be a listing of all of the general ledger balance sheet accounts (except those with $0.00 balances) along with each account’s balance appearing in the appropriate debit or credit column.
Module 4: Completing the Accounting Cycle
If you’re entering accounting transactions manually or using spreadsheet software, running a trial balance is a must. If you’re using accounting software, you can still run a trial balance at the end of the accounting period to ensure that your ending balances look right. After the above entries have been posted to the appropriate general ledger accounts, you are now ready to run an adjusted trial balance, which will reflect the updated balances.
- You then add together the $5,575 and $4,665 to get a total of $10,240.
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- If you look in the balance sheet columns, we do have the new, up-to-date retained earnings, but it is spread out through two numbers.
- The purpose of closing entries is to close all temporary accounts and adjust the balances of real accounts such as owner’s capital.
- These next steps in the accounting cycle are covered in The Adjustment Process.
This meant they would review statements to make sure they aligned with GAAP principles, assumptions, and concepts, among other things. In these columns we record all asset, liability, and equity accounts. There is a worksheet approach a company may use to make sure end-of-period adjustments translate to the correct financial statements.