Trial Balance vs Balance Sheet

The balance sheet is a financial statement that is used for the purpose of evaluating the financial standing of an entity at a particular date. The balance sheet is part of the core group of financial statements. It may be issued only for internal use, or it may also be intended for such outsiders as lenders and investors. The balance sheet summarizes the recorded amount of assets, liabilities, and shareholders’ equity in a company’s accounting records as of a specific point in time (usually as of the end of a month).

These balances fall under three components, including assets, liabilities and equity. Each of these components shows a different aspect of a company’s operations. A financial statement showing the company’s income and expenditures is known as the income statement.

Companies may also prepare a cash flow statement and statement of equity. However, they do not require information on the trial balance in most cases. Similarly, although the trial balance and balance sheet may sound confusing due to their names, they are different. If the total debits do not equal total credits in the trial balance, it signals a mistake exists in the accounting records.

• The main difference between a trial balance and a balance sheet is their purpose and timing.
• You may use this report to identify the cause of any balance discrepancies and make the necessary adjustments to the ledger accounts.
• Within the general ledger, companies have various accounts related to different areas.
• Understanding these tools is essential for maintaining accurate financial records and making informed financial decisions.

Learn how a FloQast partnership will further enhance the value you provide to your clients. Emma’s 70-person geographically distributed accounting team improved internal controls and streamlined the audit thanks to FloQast. Stay up to date with our team’s knowledge of the latest accounting tools. Our goal is to deliver the most understandable and comprehensive explanations of financial topics using simple writing complemented by helpful graphics and animation videos. Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications.

Format

The trial balance is a listing of a company’s financial accounts and their balances, while the balance sheet is a report that shows a company’s net worth. A balance sheet is a financial statement which represents the position of assets and liabilities of an organisation as on a specific date. It gives a clear picture of the overall financial status and health of a company.

In other words, a trial balance is more or less a type of sheet that is used to record all sorts of ledger balances that are classified as debit and credit. A trial balance is usually prepared during a calendar year or financial year-end. A balance sheet is one of the five financial statements that are distributed outside of the accounting department and are often distributed outside of the company. The balance sheet summarizes and reports the balances from the asset, liability, and stockholders’ equity accounts that are contained in the company’s general ledger. The balance sheet is also referred to as the statement of financial position. External users most commonly use the year-end financial statements for their decision-making.

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In contrast, the company prepares a balance sheet at a particular date which is usually at the end of the accounting year. As CEO and Co-Founder, Mike leads FloQast’s corporate vision, strategy and execution. Prior to founding FloQast, he managed the accounting team at Cornerstone OnDemand, a SaaS company in Los Angeles. He holds a Bachelor’s degree in Accounting from Syracuse University. Trial balance is primarily used for internal use of accountants and auditors to check arithmetical accuracy of books. Balance sheet on the other hand plays a more pivotal role in the accounting cycle as it is reported externally and relied upon by several stakeholders.

What is the difference between a trial balance and a balance sheet?

Due to this fact, a balance sheet is also referred to as “Statement of financial position”. This financial statement pertains to a particular date which is usually the accounting period’s last date. It also provides confidence in the integrity of the underlying accounting records. This section will highlight the main differences between a trial balance and balance sheet in terms of timing, purpose, content, and format. Trial balance is an important part of bookkeeping as it shows the final status of all the accounts. The intention to create trial balance is to facilitate easier preparation of the financial statements.

Creating financial statements like a balance sheet can be confusing, especially understanding how a trial balance fits in. The accounting cycle of an organisation encompasses all the steps that result in the presentation of financial statements of an organisation. This begins from charting of all accounts to journalizing to posting to drawing up of profit and loss account and balance sheet. It is used to ensure that the totals of all the debit and credit balances are equal. Shown is an example two-column trial balance for a fictional bakery before preparing their financial statements.

Trial Balance vs Balance Sheet

Due to this feature, some users may confuse it with the balance sheet. However, the trial balance is an internal document that accumulates various balances from the general ledger. This statement has a list of all accounts with the financial systems. Therefore, any head with a general ledger account will also appear on the trial balance.

Once the balance sheet accounts are tied out, the adjusted trial balance can create the income statement and balance sheet. The income statement tracks the results of operations over time, while the balance sheet tracks us tax changes could make life insurance more popular the cumulative impacts of operations on assets, liabilities, and stockholder’s equity. The balance sheet thus is a snapshot of what the company owns and what the company owes including the value of owner’s equity.

All errors must be fixed before financial statements like the balance sheet can be prepared and trusted. The trial balance usually includes a list of totals of accounts of the general ledger. The general ledger accounts should include the description of the account, the account number, and the final debit/credit balance. Along with this, the trial balance should include the accounting period of the report being created. The trial balance does not show each separate transaction, only the accounts total whereas the general ledges show all the transactions of the account. If any adjusting entries were entered, the trial balance should show the adjusting entry, the figures before the adjustment, and the balances after the adjustment.

With the help of income statements, one can understand the financial health of his business. In order to understand the financial conditions the balance sheet and the cash flow statement also play an important role. The total expenses are subtracted from the total income in order to get the net income of the company which is displayed in the income statement.