Question

A post closing trial balance is a list of general ledger accounts and their balances after the closing entries have been posted. The post closing trial balance would contain only the balance sheet accounts with balances as the income statement accounts would not be listed because they are considered temporary accounts whose balances have been closed to the capital account. Please describe an income statement account that would be closed to the capital account.

Answer 1

As we know, income statments and balance sheets are prepared from the data given by the trial balances and All income statement account will be closed to the capital account due to their temporary nature. For Example Revenue from sales account. This account constitutes the major part of income statement which is shown as credit to the income statement. Being part of credit balances, all debit balances or say expenses will be deducted from this account and all adjustments will be made like taxes, transfer to reserves,etc. The final remaining balance of income statement after deducting all required deductions and expenses, will be transfered to retained earnings or reserves and surplus in balance sheet. Where, these accounts are disclosed as a part of capital account. Therefore, from above example we can say that the post closing trial balance would contain only the balance sheet accounts with balances as the income statement accounts would not be listed because they are considered temporary accounts whose balances have been closed to the capital account.