As a business owner, it’s important to differentiate the meaning of a trial balance and balance sheet so you can use them for the right purpose. The article will take you through what you need to know about a trial balance at a basic level. We’ll explain it as easy and understandable as possible so you can compare the trial balance vs. balance sheet.
Trial Balance and Balance Sheet – Definitions and Meanings
What is a balance sheet?
A balance sheet, also known as the statement of financial position, is a part of the core group of financial statements. It represents the record amount of assets, liabilities, and shareholders’ equity in a company’s accounting records as of a specific point in time. This time is usually the last date of the accounting period).
The balance sheet is considered as a snapshot of a company’s financial condition that gives its stakeholders, such as lenders and investors, an insight into what the company owns including the value of owner’s equity.
Generally, the balance sheet is constructed based on the guidelines given by the International Financial Reporting Standards and the U.S Generally Accepted Accounting Principles.
>> More: Negative Liability on Balance Sheet
What is a trial balance?
A trial balance is a worksheet used in bookkeeping, that lists the ending balance in all ledger accounts as of a specific point in time (usually as of month-end). It is integrated into most accounting software and used within the accounting department and a source document by the company’s auditors.
The trial balance accounting is prepared once all journal entries are posted to the respective ledger accounts. Each ledger account is totaled and balanced, then the total debits match the total credits.
The purpose of preparing trial balances on a periodic basis is to find out mathematical and factual inaccuracies that may happen in the double-entry system of accounting. Then, you can make sure that the entries in your business’s record and bookkeeping facilities are factually correct.
Trial Balance Sheet Example
An example of a trial balance is as follows:
As you can see, by doing this you can verify the total amount of debits equals the total dollar amount of credits.
Difference between a Trial Balance and Balance Sheet?
Here are the details of the difference between trial balance vs balance sheet:
Meaning
A Balance Sheet is a key financial statement that summarizes a company’s assets, equity, and liabilities at the end of the accounting period.
The trial balance sheet is a compiled list containing all ledger account balances, in which the balance of each ledger is combined into credit and debit account column total that are always equal.
Usage
Balance sheet is issued for internal use. Additionally, it is very important for such outsiders as lenders and investors to assess the financial picture of a company.
Whereas trial balance is usually prepared by a bookkeeper or accountant and is for use within the accounting department and by auditors.
Reporting level
The Balance Sheet, a final report in the accounting process, contrasts with the trial balance sheet, which is used for conducting other reports including a profit and loss statement and balance sheet.
Standard & Format
Balance sheet uses the classic T account format with liabilities on the left side and assets on the right side.
Trial balance is also a part of the double-entry bookkeeping system, but it is prepared in columnar format with debit balances in the left column and credit balances in the right column.
