How to Prepare a Post-Closing Trial Balance

A post-closing trial balance serves as a financial statement, created after a business has completed its closing entries for an accounting period. Its primary purpose is to verify that the total debits within the general ledger precisely equal the total credits. This balance confirms the accuracy of the accounting records before beginning a new accounting cycle. It specifically reflects the balances of permanent accounts that carry forward into the next period, ensuring a solid foundation for future financial reporting.

Completing the Closing Process

Before preparing a post-closing trial balance, a business must first complete its closing entries. These entries are essential for transferring the balances from temporary accounts to permanent accounts at the end of an accounting period. This process ensures that all temporary account balances are reset to zero, preparing them for the accumulation of new transactions in the subsequent period.

Closing entries are necessary to accurately measure income for a specific period and update equity accounts. Zeroing out temporary accounts allows businesses to track revenue and expenses for each new accounting cycle. This ensures financial clarity and proper period-end reporting. Accounts closed include all revenue, expense, and dividend or drawing accounts.

Identifying Accounts for Inclusion

After the closing process, only specific accounts retain balances and are included in the post-closing trial balance. These are known as permanent accounts, representing the ongoing financial position of the business. Permanent accounts include all asset accounts, such as Cash, Accounts Receivable, and Equipment.

All liability accounts, including Accounts Payable, Notes Payable, and unearned revenue, are also permanent accounts. Equity accounts, such as Common Stock and Retained Earnings, are permanent accounts that reflect cumulative ownership claims. Conversely, temporary accounts, including all revenue, expense, and dividend or drawing accounts, are not present on the post-closing trial balance.

Assembling the Post-Closing Trial Balance

To assemble the post-closing trial balance, a business first lists all permanent accounts. Each account name is listed in the order they appear in the general ledger. For each account, its final balance is assigned to either the debit or credit column, based on its normal balance type. For instance, asset accounts have debit balances, while liability and equity accounts have credit balances.

Once all permanent accounts are listed, the next step is to total the amounts in both the debit and credit columns separately. These totals must be calculated accurately. The final step is to verify that the sum of all debit balances equals the sum of all credit balances. This equality confirms the accounting equation remains in balance and that the closing process was completed without mathematical errors.