Adjusted Trial Balance Vs. Post Closing Trial Balance
Financial statements present a report of a company’s operations for a period. Usually, these statements become available after a company goes through an accounting period. They include four critical financial statements that show different aspects of operations. However, these financial statements present an end-product of the accounting process. Companies must satisfy various factors during the process to prepare these statements.
The first step in preparing the financial statements is recording transactions. These transactions occur when a company deals with another party. Usually, companies account for them through the books of prime entry. From there, those transactions enter the general ledger. During this process, companies separate those transactions under various account headings. The general ledger is a crucial part of the overall accounting process.
Once companies prepare the general ledger, they must calculate the closing balance on each account. Companies must transfer income and expenses to the profit or loss account. These balances then reach the trial balance, contributing to the financial statements. However, companies may prepare different types of trial balances. Before understanding those types, it is crucial to know what the trial balance is.
What is a Trial Balance?
Those closing balances from the general ledger end up on the trial balance. Usually, this record includes the name of each general ledger account. On top of that, it will also enlist the balance on that account. The trial balance separates those balances based on whether the residual amount is debit or credit. It segregates those amounts under two headings with the same names, debit and credit.
The trial balance is similar to the balance sheet. It gets its name from the various account balances from the general ledger. On top of that, it assures the sum of debit and credit balances at the end are equal. In those aspects, it is similar to the balance sheet. Companies can ensure the balance sheet will balance if the trial balance has equal debit and credit sides.
Overall, a trial balance is a record that helps prepare financial statements. Companies can use it to accumulate general ledger balances. It segregates those balances into debit and credit columns. Usually, preparing the trial balance is the last step before reporting the financial statements. It also provides a final check on the figures that will end up on those statements. However, the trial balance may come in several forms, including adjusted and post-closing trial balances.
What is the Adjusted Trial Balance?
Therefore, the adjusted general ledger presents a list of those adjusted general ledger balances. Companies prepare this trial balance after they make the traditional one. The amounts from this record end up on the different financial statements that companies prepare. However, unadjusted balances do not constitute a part of those statements. An essential part of the adjusted trial balance is true-up and adjusting entries.
The adjusted trial balance is crucial in reporting an accurate balance on various accounts. Usually, these include the fixed assets, where depreciation is an adjustment. Similarly, accounts receivable may require bad or doubtful debt entries. On top of that, companies must record accrued expenses where the amounts were not available before. Lastly, one of the most prominent parts of those adjustments includes recording closing inventories.
Overall, the adjusted trial balance represents a record of adjusted balances from the general ledger. It differs from the traditional trial balance that does not include those adjustments. For most companies, these adjustments are crucial in presenting an accurate picture of the financial statements. The adjusted balances may relate to several accounts, as mentioned above. Once companies make those adjustments, they can prepare the adjusted trial balance.
What is the Post-Closing Trial Balance?
A post-closing trial balance includes a list of all balance sheet accounts at the end of a reporting period. These balances also include those with a non-zero balance. Usually, the post-closing trial balance helps companies verify the total debit and credit balances. Similarly, it allows them to ensure that those balances match. This trial balance lists debit balances as positive and credit balances as negatives. The sum of those balances must equal zero.
The post-closing trial balance is crucial in ensuring a company closes all temporary accounts. On top of that, it helps assure that the balances on those accounts get reset to zero. Usually, companies prepare the post-closing trial balance after adjusting general ledger accounts. Therefore, it follows an adjusted trial balance. With that version of the trial balance, companies can record post-closing entries for the accounting period.
After accounting for the post-closing entries in the adjusted trial balance, companies get the post-closing trial balance. This trial balance is crucial in closing any accounts in the last accounting period. On top of that, it helps transition into the upcoming accounting period. Once companies prepare the post-closing trial balance, they must record further entries into that accounting period. It is the last step after the post-closing trial balance.
Overall, the post-closing trial balance involves recording closing entries to the adjusted trial balance. It has a similar format as other versions of the record. This trial balance includes the general ledger account names and balances. On top of that, it offers the same features as the traditional trial balance. With this version, companies can also ensure their closing balance match. The post-closing trial balance is crucial in transitioning into the upcoming accounting period.
Adjusted Trial Balance Vs. Post Closing Trial Balance: What is the difference?
The adjusted and post-closing trial balances represent two versions of the record. Both have various similarities in how they report general ledger balances. On top of that, they have a similar format and follow the same principle. The adjusted trial balance also acts as a base for the post-closing trial balance. Nonetheless, they are different from each other.
The differences between the adjusted and post-closing trial balances include the following.
The post-closing trial balance gets prepared after closing entries. These entries include shifting information from temporary accounts to the profit or loss statement. Usually, it involves zeroing the existing balances in those temporary accounts. By doing so, companies prepare them for use in the upcoming accounting period. These closing entries occur after the adjustments made in the adjusted trial balance.
Income and expenses
The closing entries in the post-closing trial balance primarily affect income and expense accounts. In the adjusted trial balance, these accounts exist with balances. However, they only hold temporary figures. With the post-closing trial balance, companies remove those amounts. As mentioned, this process occurs through closing entries.
The adjusted trial balance does not impact a company’s retained earnings. Since it holds income and expense account separately, it does not affect the retained earnings account. However, the post-closing trial balance adjusts this account. As mentioned, it does so by transferring incomes and expenses to the retained earnings account. The post-closing trial balance also closes dividends accounts, thus, impacting the retained earnings.
The trial balance holds a list of closing general ledger balances. Usually, it involves several steps before entering those balances in the financial statements. One version of this record is the adjusted trial balance. Companies prepare it after making adjustment entries in the general ledger accounts. Similarly, companies adjust that trial balance with closing entries. Once they do so, they get the post-closing trial balance.