A trial balance is a double-faceted accounting summary that indicates all debits in one column and all credits in another. Financial managers rely on the summary to verify the accuracy of financial statements' underlying information and confirm the basic accounting equation. Managers also list financial accounts in the post-closing trial balance, generally to comply with edicts such as generally accepted accounting principles, or GAAP.
The accounting closing process often requires new ways of doing things. Bookkeepers, accountants and financial managers must work in tandem to review journal entries, identify incorrect postings and weed mathematical inaccuracies out of the reporting process. GAAP accounting close procedures give prominence to various skills, the most important of which include attention to detail, being good with numbers and analytical dexterity. Financial managers post adjusting entries to correctly allocate expenses such as prepaid items to the right period. The ultimate goal is to generate error-free, complete financial statements.
Post-Closing Trial Balance
Accountants prepare a post-closing trial balance at the end of the closing process -- meaning, after the company prepares its accounting reports. Only balance sheet accounts are integral to a post-closing trial balance; income statement accounts typically go through the retained earnings account, which records the net income or loss for a period -- say, a month or quarter. A post-closing trial balance, similar to a pre-closing trial balance, requires that all debits equal all credits. Balance sheet accounts range from cash and customer receivables to inventory, vendor payables and loans due.
Companies spend millions of dollars and numerous hours trying to master financial reporting and to prevent the often bulky fees that come from regulatory scolding. To avoid running afoul of the law, businesses prepare various summaries, one of which is a post-closing trial balance. This document is, in essence, the financial control that ultimately gives corporate management confidence that the underlying performance information is correct. If post-closing trial balance information is correct, final accounting reports are less likely to contain mathematical errors or factual inaccuracies. Accounting reports include a statement of financial position, a statement of profit and loss, a statement of cash flows and a statement of shareholders’ equity. “Balance sheet” and “statement of financial position” are synonyms. Accountants use the terms “statement of profit and loss” and “income statement” interchangeably.
Retained earnings, an equity item, is the last account that financial managers typically list in a post-closing trial balance. However, some companies adopt a different classification scheme. This is because account hierarchy doesn’t matter in a post-closing trial balance exercise; what matters is completeness -- in other words, financial managers must make sure the summary incorporates all balance sheet accounts.