3 6 Prepare a Trial Balance Principles of Accounting, Volume 1: Financial Accounting

They are prepared at different stages in the accounting cycle but have the same purpose – i.e. to test the equality between debits and credits. Once all balances are transferred to the unadjusted trial balance, we will sum each of the debit and credit columns. The debit and credit columns both total $34,000, which means they are equal and in balance. However, just because the column totals are equal and in balance, we are still not guaranteed that a mistake is not present. All temporary accounts with zero balances were left out of this statement. Unlike previous trial balances, the retained earnings figure is included, which was obtained through the closing process.

After Paul’s Guitar Shop posted its closing journal entries in the previous example, it can prepare this post closing trial balance. An income statement shows the organization’s financial performance for a given period of time. When preparing an income statement, revenues will always come before expenses in the presentation. For Printing Plus, the following is its January 2019 Income Statement.

BUS103: Introduction to Financial Accounting

When the post-closing trial balance is run, the zero balance temporary accounts will not appear. However, all the other accounts having non-negative balances are listed, including the retained earnings account. As with the trial balance, the purpose of the post-closing trial balance is to ensure that debits equal credits.

A post-closing trial balance is the final trial balance prepared before the new accounting period begins. Used to make sure that beginning balances are correct, the post-closing trial balance is also used to ensure that debits and credits remain in balance after closing entries have been completed. Service Revenue had a $9,500 credit balance in the trial balance column, and a $600 credit balance in the Adjustments column. To get the $10,100 credit balance in the adjusted trial balance column requires adding together both credits in the trial balance and adjustment columns (9,500 + 600). Once all accounts have balances in the adjusted trial balance columns, add the debits and credits to make sure they are equal. If you check the adjusted trial balance for Printing Plus, you will see the same equal balance is present.

Example of a Post-Closing Trial Balance

After a company posts its day-to-day journal entries, it can begin transferring that information to the trial balance columns of the 10-column worksheet. To prepare the financial statements, a company will look at the adjusted trial balance for account information. From this information, the company will begin constructing each of the statements, beginning with the income statement.

The statement of retained earnings will include beginning retained earnings, any net income (loss) (found on the income statement), and dividends. The balance sheet is going to include assets, contra assets, liabilities, and stockholder equity accounts, including ending retained earnings and common stock. The process of preparing the post-closing trial balance is the same as you have done when preparing the unadjusted trial balance and adjusted trial balance. Only permanent account balances should appear on the post-closing trial balance. These balances in post-closing T-accounts are transferred over to either the debit or credit column on the post-closing trial balance.

Income Statement

The purpose of closing entries is to transfer the balances of the temporary accounts (expenses, revenues, gains, etc.) to the retained earnings account. After the closing entries the post-closing trial balance helps to verify that are posted, these temporary accounts will have a zero balance. The permanent balance sheet accounts will appear on the post-closing trial balance with their balances.