Post-Closing Trial Balance - Online Tutor, Practice Problems & Exam Prep

The post-closing trial balance reflects only permanent accounts, resembling a balance sheet since all temporary accounts like revenues, expenses, and dividends are closed. Retained earnings are affected by two closing entries: net income and dividends. The equation for retained earnings is: $\mathrm{BBRE}+\mathrm{Net}-\mathrm{Dividends}=\mathrm{Ending}Balance\mathrm{Retained}\mathrm{Earnings}$. This cycle continues as new revenues and expenses are recorded in the next accounting period.

Post-Closing Trial Balance

Alright. So now let's look at the post-closing trial balance. This is the freshest one with nothing in our income statement accounts. So, the post-closing trial balance is only showing our permanent accounts. Okay? And this is basically a balance sheet at this point because everything else is gone, and our permanent accounts are generally just on the balance sheet. So let's go ahead and look at what happened. We had this adjusted trial balance, then we did these closing entries. These are the entries that we just made over here. Right? We had those entries related to revenue, those entries related to expenses, and we had the entry for the dividends. Cool?

Notice what's left after those entries. Notice that all of our revenue accounts, all our dividends accounts, expense accounts, all of those are empty. There's no balance in any of those accounts, and what's left? We've got our assets up here. We've got our liabilities and we've got our equity. So there you go. We are left with just our balance sheet accounts, and those are the only ones that have a balance in the post-closing trial balance, right? So this is where we start the year, adn then we're going to start earning revenue again, start having expenses, paying dividends, right? And those other balances are going to start accumulating again, and then we'll close those balances again, and the cycle continues. Cool? Alright. So that is our post-closing trial balance, and I just want to make this note, which I think we've talked about before, but I just wanted to drive it in right here is that retained earnings is hit by 2 closing entries, right?

We saw that there was the dividends entry and then the entries related to net income, right? And we split that up into the revenue, the expenses, and then the closing of income summary, right? So there's those two crucial entries for retained earnings, and that takes us back to that general account flow. So if we think about retained earnings, we would have that beginning balance in retained earnings, BBRE is what I'm calling it, beginning balance retained earnings plus net income minus dividends equals the ending balance in retained earnings. Cool? Alright. So that's your post-closing trial balance. Let's go ahead and move on to the next video.

Here’s what students ask on this topic:

What is a post-closing trial balance?

A post-closing trial balance is a financial statement that lists all the permanent accounts and their balances after closing entries have been made. It ensures that total debits equal total credits after the closing process. This trial balance includes only balance sheet accounts, such as assets, liabilities, and equity, because all temporary accounts like revenues, expenses, and dividends have been closed to retained earnings. Essentially, it resembles a balance sheet and serves as the starting point for the next accounting period.

Why are temporary accounts not included in the post-closing trial balance?

Temporary accounts, such as revenues, expenses, and dividends, are not included in the post-closing trial balance because they are closed at the end of the accounting period. Closing entries transfer the balances of these temporary accounts to retained earnings, resetting their balances to zero for the new accounting period. This process ensures that only permanent accounts, which carry their balances forward, are included in the post-closing trial balance.

How does the post-closing trial balance relate to the balance sheet?

The post-closing trial balance closely resembles the balance sheet because it includes only permanent accounts, which are the same accounts listed on the balance sheet. These accounts include assets, liabilities, and equity. Since all temporary accounts have been closed, the post-closing trial balance effectively serves as a snapshot of the company's financial position at the end of the accounting period, similar to the balance sheet.

What is the equation for retained earnings in the post-closing trial balance?

The equation for retained earnings in the post-closing trial balance is:

$\mathrm{BBRE}+\mathrm{Net}-\mathrm{Dividends}=\mathrm{Ending}\mathrm{Balance}\mathrm{Retained}\mathrm{Earnings}$

Here, BBRE stands for Beginning Balance Retained Earnings. This equation shows that the ending balance in retained earnings is calculated by adding net income and subtracting dividends from the beginning balance of retained earnings.

What are the steps to prepare a post-closing trial balance?

To prepare a post-closing trial balance, follow these steps:

1. Complete the adjusted trial balance.
2. Record closing entries to transfer balances from temporary accounts (revenues, expenses, dividends) to retained earnings.
3. Post the closing entries to the general ledger.
4. Prepare the post-closing trial balance by listing all permanent accounts (assets, liabilities, equity) and their balances.
5. Ensure that total debits equal total credits in the post-closing trial balance.

This process ensures that the company's books are ready for the next accounting period.