Adjusted and post-closing trial balances are two stages of preparing a trial balance statement after the initial unadjusted entries.
Both represent the summaries of ledger accounts of a business. Both types of statements are non-formal and offer valuable information for the preparation of financial statements.
Let us discuss what are adjusted and post-closing trial balances and their key differences.
What is Adjusted Trial Balance?
Adjusted trial balance is an internal business document that presents the closing balances of all ledged accounts after reconciliation or adjustments.
Adjusted trial balance is an advanced form of the commonly used trial balance statement. Almost every trial balance statement requires adjusting entries.
Adjusting a trial balance involves a few key factors. First, it requires a preparer to include all account balances for the current accounting period only. Transactions taking place after the accounting period closing date should be carried forward to the next accounting cycle.
Second, adjustments should be made for omitted or false journal entries so that all journal accounts reflect the correct closing balances.
Simply put, a trial balance adjusted for all accounts is called an adjusted trial balance.
How Does Adjusted Trial Balance Work?
The workflow of an adjusted trial balance starts with recording journal entries. A company can follow a step-by-step approach to prepare adjusted trial balance statements.
- The first step is to prepare journal entries for all accounting transactions. A double-entry bookkeeping system will always result in equal debit and credit balances.
- Second, prepare an unadjusted trial balance. It is the balance that shows the current closing balances of all accounts without reconciliation.
- Next, reconcile all journal accounts for errors and omissions. It is the process of adjusting the trial balances of all accounts.
- Then, you should calculate the closing balances of all accounts and see if they show equal debit and credit balances.
- Finally, you can record the adjusted trial balance accounts that would then become the initial entries for the financial statements.
The adjustments for trial balance accounts may include:
- Deferred income and expense transactions
- Accrued expenses or unearned income transactions
- Depreciation and amortization adjustments
- Accrued or prepaid tax transactions
- Accounts receivable and payable adjustments
- Errors, omissions, and missing transactions
Format and Example
Adjusted trial balance does not represent a formal format of a financial statement. It includes adjusting entries to journal accounts where needed.
The trial balance statement includes temporary journal accounts that reflect zero balances at the end of each accounting period. These accounts include revenue, expense, COGS, gains, and losses accounts.
It also includes permanent journal accounts like cash, receivables, payables, equity, etc.
Here is an example of an adjusted trial balance with adjusting entries.
| Account | Unadjusted Trial Balance | Adjusting Entries | Adjusted Trial Balance |
| Cash | 80,000 | 10,000 | 90,000 |
| Accounts Receivable | 160,000 | 20,000 | 180,000 |
| Inventory | 100,000 | 0 | 100,000 |
| Non-Current Assets | 350,000 | 20,000 | 370,000 |
| Current Assets | 60,000 | 0 | 60,000 |
| Accounts Payable | (90,000) | 0 | (90,000) |
| Long-term liabilities | (510,000) | (30,000) | (540,000) |
| Equity | (300,000) | 0 | (300,000) |
| Revenue | (450,000) | (65,000) | (515,000) |
| COGS | 290,000 | 15,000 | 275,000 |
| Salaries | 170,000 | 30,000 | 200,000 |
| Taxes | 70,000 | 0 | 70,000 |
| Rent | 50,000 | 0 | 50,000 |
| Other Expenses | 20,000 | 0 | 20,000 |
| Total | $ 0 | $ 0 | $ 0 |
It is important to note that the closing balance of all accounts should reflect zero net balance for all debit and all credit accounts at the closing day.
What is Post-Closing Trial Balance?
The post-closing trial balance is the summary of all permanent journal accounts with non-zero balances at the end of an accounting period.
A trial balance contains temporary and permanent accounts. The remaining balance of all temporary accounts is carried forward to the next accounting period.
Therefore, only permanent journal account balances are represented on the post-closing trial balance.
It is also a non-formal statement that does not form a part of the formal financial statements of a business.
The post-closing trial balance will include assets, liabilities, and equity accounts that are permanent and have a non-zero balance at the closing date of an accounting period.
The sum of all debit and credit accounts should be equal in the post-closing trial balance. Otherwise, an adjustment entry will be required to reflect correct balances.
How Does a Post-Closing Trial Balance Work?
The process of the post-closing trial balance is similar to the adjusted trial balance with a few changes.
- A post-closing trial balance will include only permanent accounts such as cash, inventory, fixed assets, equity, and so on.
- All temporary account balances such as revenue, COGS, accrued expenses, deferrals, etc. would be carried forward to the next accounting period.
- All post-closing trial balances should reflect correct account balances taken from the general ledger of all accounts.
- The sum of all debit and credit accounts should always be the same.
A post-closing trial balance is prepared after the adjusted trial balance. Therefore, there are fewer chances of errors and omissions in the post-closing process.
The post-closing trial balance accounts are then taken forward to the relevant financial statements.
Format and Example
The format of a post-closing trial balance statement is also similar to the adjusted trial balance summary. The key difference in the format is the omission of temporary ledger accounts.
Here is an example format of the post-closing trial balance.
| Account | Debit | Credit |
| Cash | 380,000 | |
| Accounts Receivable | 150,000 | |
| Inventory | 200,000 | |
| Non-Current Assets | 550,000 | |
| Accumulated Depreciation | (180,000) | |
| Accounts Payable | 120,000 | |
| Long-term liabilities | 300,000 | |
| Accrued liabilities | 50,000 | |
| Retained Earnings | 130,000 | |
| Equity | 500,000 | |
| Total | $ 1,100,000 | $ 1.100,000 |
The accumulated depreciation account is a debit account that reflects a negative balance of the depreciation accumulation of all fixed assets.
Also, as you can note there are no temporary ledger accounts and the sum of all credits and debits is equal.
What is the Purpose of Adjusted Trial Balance?
The foremost and important factor for adjusted trial balance is to ensure all recorded journal entries are accurately recorded.
It also helps an accountant to reconcile all journal entries that belong to one accounting cycle (current) only. Journal entries for transactions taking place after the closing date should be removed and carried forward to the next accounting period.
Then, it reconciles the journal ledger for any mistakes, accounting errors, and omissions.
Thus, the adjusted trial balance is a process to prepare accurate ledger account balances for an accounting cycle.
What is the Purpose of the Post-Closing Trial Balance?
The post-closing trial balance summary only considers permanent ledger accounts. So, first of all, it differentiates between the temporary and permanent ledger accounts.
Temporary ledger accounts are recurring accounts that start and end with zero balances for every accounting cycle.
The post-closing trial balance is also the final summary of the trial balance that is then used for the preparation of the financial statements.
The post-closing trial balance also ensures that all ledger accounts represent accurate balances. It follows the double-entry accounting principles. It means the total of all credit and debit ledger accounts should always be equal.
Adjusted Trial Balance Vs Post-Closing Trial Balance – Key Differences and Similarities
The adjusted and post-closing trial balance summaries have some similarities and differences. Both serve the accountants to prepare the pre-requisite for the preparation of financial statements.
Here are a few similarities between the adjusted and post-closing trial balances.
- Both represent journal ledger accounts and essential bookkeeping information.
- Both summaries include accounting balances for one accounting cycle and carry forward the closing balances to the next one.
- Both are non-formal statements that do not belong to the financial statements.
- Both statements become the foundation for the preparation of financial statements.
- These trial balance summaries help a business in maintaining accurate financial records and complying with the accounting rules.
- Both of these summaries follow the same double-entry accounting method.
Here are a few key differences between the adjusted trial balance and closing-trial balance.
- Adjusted trial balance removes errors and makes adjusting entries for deferrals, accruals, prepaid transactions, and other adjustments.
- Adjusted trial balance includes temporary and permanent ledger accounts whereas p0st-closing trial balance only included permanent ledger accounts.
- The post-closing trial balance is created after the adjusted trial balance so it does not require adjusting entries usually.
- The adjusted trial balance aims to reflect the accuracy of all ledger accounts whereas the post-closing trial balance reflects a net-zero balance for all debit and credit accounts.
- The post-closing trial balance is the final stage of trial balances which means ledger accounts for a new accounting cycle are available for reuse.
