Preparing the Final Trial Balance
in the Accounting Cycle
The Final Trial Balance lists the Balance Sheet Accounts, or Real Accounts, after the Income Statement Accounts are closed. The balances in each account are then carried forward into the next reporting period.
Sunny Sunglasses Shop
Trial Bal. After Close
January 31, 2007
Since each of the Income Statement accounts were closed, only Balance Sheet Accounts appear above. These accounts are carried forward into February, the next reporting period. The Retained Earnings account now shows the balance from Net Income for January that was transferred to Retained Earnings as a result of the closing entries in the last section. Since this was the first month of operations, the Retained Earnings balance equals the Net Income for January. The Retained Earnings account continues to accumulate Net Income (or losses) during the life of the business, less any amount distributed to the owners. This is the final step in the Accounting Cycle, as Reversing Entries, the next step, occur at the beginning of the next reporting period.
| The Final Trial Bal. serves two main purposes:It verifies the equality of the debits and credits after the Closing Entries. It provides a listing of each account balance that is carried forward to the next reporting period. |
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