What Goes on a Post-Closing Trial Balance?

A trial balance is a list of all accounts in a company’s general ledger, along with their debit or credit balances, compiled at a specific point in time. Its purpose is to confirm that the total of all debit balances equals the total of all credit balances, a core principle of double-entry accounting. A post-closing trial balance specifically serves as a final verification step in the accounting cycle, prepared after all closing entries have been made. This trial balance ensures records are in balance and ready for the next accounting period.

Accounts That Remain

The post-closing trial balance includes only accounts whose balances are carried forward from one accounting period to the next. These are known as permanent accounts, sometimes referred to as real accounts. Their balances are not zeroed out at the end of an accounting period.

Assets

Assets represent resources that a business owns or controls and that are expected to provide future economic benefits. Common examples appearing on a post-closing trial balance include cash, which is the most liquid asset, and accounts receivable, representing money owed to the business by customers for goods or services already delivered. Other assets might include inventory (goods available for sale), equipment (such as machinery or vehicles), buildings, and land.

Liabilities

Liabilities are obligations owed by the business to external parties. Accounts payable, for instance, represents amounts owed to suppliers for purchases made on credit. Notes payable refers to formal written promises to pay a specific amount by a certain date. Salaries payable indicates wages earned by employees but not yet paid, while unearned revenue signifies payments received for goods or services not yet delivered.

Equity

Equity represents the owners’ residual claim on the assets of the business after deducting liabilities. For corporations, this often includes accounts like Owner’s Capital or Retained Earnings, which accumulates a company’s net income over time less any dividends distributed. For sole proprietorships, an Owner’s Capital account shows the owner’s investment and accumulated earnings. These equity accounts carry their ending balances forward.

Accounts That Are Excluded

Certain accounts are intentionally excluded from the post-closing trial balance because their balances are reset to zero at the end of each accounting period. These are known as temporary accounts, or nominal accounts, and they track financial activity for a specific period, typically a fiscal year. Their exclusion is a direct result of the closing process.

Revenue

Revenue accounts track the income generated from a business’s primary operations and other activities. Examples include Sales Revenue from selling products, Service Revenue from providing services, or Interest Revenue earned on investments. At the period’s end, their balances are transferred to a permanent equity account, such as Retained Earnings.

Expense

Expense accounts record the costs incurred to generate the revenues of a given period. This category encompasses a wide range of operational costs, such as Rent Expense, Salaries Expense, Utilities Expense, and Depreciation Expense, which allocates the cost of long-lived assets over their useful lives. Like revenue accounts, expenses are closed out to a permanent equity account to determine the period’s net income or loss.

Distributions

Distributions to owners, such as Dividends for corporations or Owner’s Drawings for sole proprietorships. Dividends represent a portion of a company’s earnings distributed to shareholders. Owner’s Drawings reflect amounts withdrawn by the owner from the business for personal use. These accounts reduce equity and are closed out at the end of the period, transferring their balances to a permanent equity account.

Starting the New Period

The post-closing trial balance serves as the starting point for a new accounting period. It verifies that, after all revenues, expenses, and distributions have been closed out, the accounting equation (Assets = Liabilities + Equity) remains in balance. This must hold true for accurate and reliable financial records.

This final trial balance confirms the integrity of the ledger before new transactions are recorded, providing a clean slate for temporary accounts. By zeroing out revenues and expenses, the business can accurately measure its financial performance in the upcoming period without carrying over previous period’s activity. This process ensures that financial statements prepared at the end of the new period will reflect only that period’s activities.

The post-closing trial balance acts as a control mechanism within the accounting cycle. If debits do not equal credits, it indicates an error in the closing entries that must be identified and corrected. This verification step is important for maintaining accurate financial records and supports the preparation of reliable financial reports for stakeholders.