A post-closing trial balance is a list of all general ledger accounts and their balances prepared after the closing entries for a period have been recorded and posted. It is the last step in the accounting cycle before a new period begins. Because closing entries reset all revenue, expense and dividend or drawing accounts to zero, the post-closing trial balance contains only permanent accounts: assets, liabilities and equity.
Its purpose is to confirm two things: that total debits still equal total credits after closing, and that every temporary account has in fact been closed. It is the third trial balance in the traditional cycle, following the unadjusted trial balance, prepared before adjustments, and the adjusted trial balance, prepared after adjusting entries and used to draft the financial statements.
How it is prepared
- Record and post closing entries: revenues and expenses are closed to the income summary account, the income summary is closed to retained earnings (or owners' capital), and dividends or drawings are closed directly to retained earnings or capital.
- List every account that still has a balance, with debit balances in one column and credit balances in the other.
- Total the columns and confirm they agree.
- Check that no revenue, expense, income summary, dividends or drawing account appears.
Worked example
A consulting firm has the following adjusted balances at 31 December: cash $42,000, accounts receivable $28,000, office equipment $60,000, accumulated depreciation $18,000, accounts payable $9,000, unearned revenue $5,000, common stock $50,000, opening retained earnings $20,000, service revenue $180,000, expenses $142,000 and dividends $10,000.
Closing entries transfer net income of $180,000 minus $142,000, or $38,000, to retained earnings and then close dividends of $10,000. Ending retained earnings are:
Here the opening balance is carried from last year, net income comes from the closed revenue and expense accounts, and dividends are the amounts declared during the year. The result is $20,000 plus $38,000 minus $10,000, or $48,000.
| Account | Debit | Credit |
|---|---|---|
| Cash | 42,000 | |
| Accounts receivable | 28,000 | |
| Office equipment | 60,000 | |
| Accumulated depreciation | 18,000 | |
| Accounts payable | 9,000 | |
| Unearned revenue | 5,000 | |
| Common stock | 50,000 | |
| Retained earnings | 48,000 | |
| Totals | 130,000 | 130,000 |
The totals agree, and no temporary accounts remain. The retained earnings figure of $48,000 matches the statement of retained earnings, and the balances match the year-end balance sheet.
What it can and cannot detect
A post-closing trial balance will reveal arithmetic errors in posting closing entries, a temporary account left open, or an entry posted to only one side. It will not detect errors that keep debits and credits equal, such as a closing entry posted to the wrong equity account, a transaction omitted entirely, or an amount recorded in the wrong asset account. Those require account reconciliations and review.
Role in modern accounting
Accounting software performs closing automatically, often at the click of a "close year" function, and can produce a post-closing trial balance on demand. Even so, accountants use it to confirm that the opening balances of the new year are correct, because those balances flow into every subsequent report. Auditors also check that opening balances in the new year's general journal and ledger agree with the prior year's audited closing balances, and that contra accounts such as accumulated depreciation retain their normal credit balance.