Post-Closing Trial Balance: Definition, Steps, and Example

A post-closing trial balance is the last trial balance prepared in the accounting cycle. It lists every permanent account (assets, liabilities, and equity) that still has a balance after closing entries are posted. It confirms that debits equal credits and that revenue, expense, dividend, and Income Summary accounts are all back to zero.

Quick vocabulary check: permanent accounts (also called real accounts) carry their balances into the next period. These are assets, liabilities, and equity accounts like common stock and retained earnings. Temporary accounts (also called nominal accounts) track a single period’s activity and are closed to zero at the end of it. These are revenues, expenses, dividends, and Income Summary.

Students often confuse this list with the adjusted trial balance or the balance sheet. The key is timing: the adjusted trial balance supports statement preparation, while the post-closing list checks the ledger after temporary accounts are cleared.

Watch Professor Farhat explain

This clip from Professor Farhat’s Closing Process lecture (17:30 to 20:58) walks through the post-closing trial balance step. Watch it first if you’d like to see the closing process in action before reading the example.

Adjusted vs post-closing trial balance

The adjusted list contains current-period revenue and expenses, so it can support an income statement. The post-closing list cannot supply those amounts by itself because closing has reduced the temporary balances to zero. The historical records still exist; the closing process does not delete them.

In the standard sequence, where dividends are recorded in a separate Dividends account, the retained earnings balance on the adjusted trial balance has not yet absorbed current-period income and dividends. The balance on the post-closing trial balance has. If a company debits dividends directly to retained earnings when it declares them, the adjusted balance already reflects dividends but still not net income. Always read the problem’s timing instead of assuming that a retained earnings number is already the ending amount.

How to prepare a post-closing trial balance in 4 steps

1. Confirm closing is done. Revenue, expense, dividend, and Income Summary accounts should all show zero in the general ledger. Some companies close straight to retained earnings without an Income Summary account. The result is the same.
2. Pull every permanent account balance. Take the ending balance of each asset, liability, and equity account from the ledger, including the updated retained earnings balance.
3. Put each balance in the right column. Use the side of its actual balance. Most assets are debits. Accumulated depreciation, liabilities, common stock, and retained earnings are usually credits.
4. Total and compare. Both columns should match, and no temporary account should appear. If either check fails, trace back through the closing entries and ledger before the new period starts.

Prepare a post-closing trial balance: worked example

Hypothetical example. Cedar Studio Inc. has completed the four closing entries for the year ended December 31, 20X7. Its $40,000 service revenue and $26,000 expenses produced $14,000 net income. Beginning retained earnings of $8,000 increased by $14,000 and decreased by $2,000 dividends, leaving $20,000.

Read the ending balance of each permanent ledger account and place it in the correct debit or credit column. Do not copy an old trial balance without updating retained earnings.

The debit total is $24,000 + $12,000 + $1,000 + $3,000 + $30,000 = $70,000. Credits also total $70,000. The account list contains no current-period service revenue, expenses, dividends, or Income Summary balance.

Unearned service revenue remains because Cedar still owes services to customers. It’s a liability, even though its name includes the word revenue. Accumulated depreciation remains because it is a contra asset, an account that reduces the balance of a related asset (here, Equipment). It holds all the depreciation recorded to date, while Depreciation Expense holds only this period’s amount and closes to zero.

Why doesn’t the trial balance total equal total assets?

Cedar’s post-closing debit and credit totals are $70,000, but its balance sheet reports total assets of $64,000. These amounts are not supposed to be identical. A trial balance lists separate ledger accounts by debit or credit. A balance sheet groups accounts by financial-statement category.

Subtracting the $6,000 contra asset from gross asset balances of $70,000 gives $64,000. That’s why equipment shows on the balance sheet at its $24,000 carrying amount, which is cost minus accumulated depreciation. On the other side, liabilities of $14,000 plus common stock of $30,000 and retained earnings of $20,000 also give $64,000. Review the full financial statement preparation example to see the presentation.

For a refresher on how assets, liabilities, and equity are grouped, see Balance Sheet Explained.

The SEC’s guide to financial statements describes the balance sheet’s assets, liabilities, and equity categories. The trial balance is an internal accounting schedule, not a replacement for that report.

What the post-closing trial balance can and cannot prove

It checks arithmetic equality. Unequal totals signal a problem, such as an omitted ledger balance, a one-sided posting, an incorrect amount, or a balance entered in the wrong column.

It checks whether temporary balances remain. Revenue or expense appearing with a nonzero balance signals that closing is incomplete or incorrect, even if total debits still equal credits.

It does not prove completeness or correct classification. Suppose a $500 depreciation adjustment was never recorded. Depreciation expense would be $500 too low, so net income and the retained earnings closed from it would be $500 too high, and accumulated depreciation would be $500 too low. Both columns would still agree because both sides of the entry are missing. The same goes for an amount posted to the wrong permanent account, such as debiting Equipment instead of Supplies: the totals match even though two balances are wrong.

If a problem is found, investigate the journal, ledger, and supporting information. Correct the underlying record and regenerate the affected statements and closing work as necessary. Never insert a miscellaneous amount simply to force the columns to agree.

For another explanation of the purpose and account selection, see OpenStax’s post-closing trial balance lesson. Its central check is the same: permanent balances remain after the temporary accounts are closed.

Common student mistakes

• Using the retained earnings figure from the adjusted trial balance. That number hasn’t picked up this period’s net income yet. Use the updated balance after closing.
• Dropping unearned service revenue because it says revenue. It’s a liability, so it stays.
• Dropping accumulated depreciation along with depreciation expense. Only the expense closes. The contra asset carries forward.
• Leaving dividends on the list. Dividends is a temporary account and closes to retained earnings.
• Expecting the total to equal total assets. Contra accounts appear as separate credits, so Cedar’s $70,000 total sits next to $64,000 of total assets, and that’s normal.

Where this check fits in the accounting cycle

The accounting cycle proceeds from analyzing transactions, to journalizing, posting, and preparing an unadjusted trial balance. Next come adjusting entries, the adjusted trial balance, financial statements, closing entries, and the post-closing trial balance.

Want to see the whole sequence on video? Watch the Closing Process lesson (subscription required) in the Financial Accounting course.

Reversing entries may follow at the beginning of the next period. They undo selected adjusting entries made at the end of the prior period, such as accrued salaries, so routine entries in the new period can be recorded the usual way. They’re optional. They are not the same as closing entries and are not needed merely to make a post-closing trial balance balance. Also, don’t confuse them with a prior period adjustment, which corrects an error in previously issued financial statements. Watch the Reversing entries lesson (subscription required).

Before carrying balances forward, use three practical checks: all temporary accounts are zero, retained earnings agrees with its statement, and both trial-balance columns agree. These checks complement review of the underlying transactions; they do not replace it.

Three practice questions with explained answers

1. Which account should be absent: salaries payable, salaries expense, or prepaid insurance?

Answer: Salaries expense. It is temporary and closes to zero. Salaries payable and prepaid insurance are permanent accounts and remain if their balances are nonzero.

2. Beginning retained earnings is $6,000, net income is $9,000, and dividends are $1,500. Which retained earnings amount belongs after closing?

Answer: $13,500 credit, assuming no other changes: $6,000 + $9,000 − $1,500. The beginning balance alone is no longer sufficient.

3. Both totals are $52,000, but Service Revenue has a $4,000 credit balance. Is closing complete?

Answer: No. Equal totals do not establish completion. The nonzero revenue balance shows that a temporary account still needs attention before the post-closing list is finalized.

Want more practice? Work through the Adjusting Entries, Closing Entries, and Post-Closing Trial Balance exercise (subscription required) in the Financial Accounting course.

Key takeaways

• A post-closing trial balance is prepared after closing entries are posted, and it’s the last trial balance of the accounting cycle.
• It lists only permanent accounts with balances: assets, contra assets, liabilities, and equity.
• Retained earnings appears at its ending, after-closing balance.
• Equal totals don’t prove the books are error-free. Omitted entries and postings to the wrong account can still balance.
• The total usually won’t match total assets, because contra assets are listed as separate credits.

Frequently asked questions

Does accumulated depreciation appear after closing?

Yes, if it has a balance. It is a permanent contra asset. Depreciation expense closes, but accumulated depreciation carries forward.

Can a permanent account have a debit balance in equity?

Yes. Retained earnings can have a debit balance, called an accumulated deficit. “Permanent” describes whether the account carries forward, not which side its balance must occupy.

Can an account be omitted because its balance is zero?

Yes. A trial balance commonly lists accounts with nonzero balances. A zero permanent account need not appear; a nonzero temporary account should not remain after complete closing.

Is a post-closing trial balance a financial statement?

No. It’s an internal schedule used to check the ledger. Outside users get the balance sheet, income statement, and the other financial statements instead.

Why don’t dividends appear on a post-closing trial balance?

Dividends is a temporary account. Closing moves its balance into retained earnings, so the Dividends account starts the new period at zero.

What replaces retained earnings for a sole proprietorship?

The owner’s capital account. The owner’s drawing account is temporary and closes to capital, so only the capital balance appears after closing.

Does accounting software still use a post-closing trial balance?

Most accounting software can produce one as a report, and many systems close temporary accounts automatically at year-end. Reviewing it is still a quick way to confirm that only permanent balances carried forward.

About the author: Mansour Farhat, CPA, CIA, DBA, is the instructor behind Farhat Lectures, where he teaches accounting courses and CPA, CMA, and EA exam review.