Trial Balance and balance sheet are the two very crucial financial documents for any firm. Many people think that these two are similar terms. However, many differences distinguish these two terms from each other. Both of these domains are the two major types of double-entry bookkeeping procedures in this modern world. In this article, we will get to learn the complete differences between trial balance and balance sheet. The topics of this content are:
Note: One more thing to remember is that in the accounting process trial balance comes as a first step before balance sheet statement activities.
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Definition Of Trial Balance
In accounting, the trial balance is a statement that helps us to check the precision and accuracy of various debit and credit transactions that are recorded in the accounting ledgers. It contains the balances (credit and debit) of a firm that is taken from its ledger accounts. These statements are very crucial and helpful in detecting various mistakes that take place during the entry of balances. However, some errors like compensating errors, errors of omission, errors of commission, errors of principle, and others can not be revealed by trial balance statements.
In simple words, trial balance statements play a crucial role in bookkeeping as it shows the final position of all accounts. The main objective to create such types of statements(trial balance) is to facilitate easier preparation of financial statements.
Definition Of Balance Sheet
A balance sheet refers to the statements of liabilities, assets, equity, and capital of a business entity or any other organization at a particular point in time, detailing the balance of income and spending or expenditure over the preceding and foregoing time. These statements are actually prepared with the aim of measuring the financial position of a business entity on a certain fixed date.
The two major classifications of the balance sheet are
- Equity And Liabilities
Assets are further classified into,
- Current Assets- These are the assets that are readily converted into cash.
- Non-Current Assets- These assets assist the companies to operate their businesses.
The second category of the balance sheet statement is equity and liabilities. Equity generally shows how much value shareholders or owners can assert from the business. While, liabilities are the items like accounts payable(money a company will pay), shareholders’ equities, current and non-current liabilities, etc.
Difference Between Trial Balance And Balance Sheet(Table)
|Basis For Difference||Trial Balance||Balance Sheet|
|Meaning||These are the statements that are created with the aim of recording balances from all the ledger accounts.||Balance sheet statements show the status and position of assets and liabilities of a firm.|
|Aim||The main objective of the trial balance is to prevent errors.||The balance sheet provides insights to sketchholders about the financial position of the firm.|
|Use||Internal use||External use|
|Frequency Of Recording||Recorded at the end of each month, half-year, or financial year.||It is recorded at the end of the financial year.|
|Part Of The Financial Statement||Not part of the financial statements||Yes, it is a component of the financial accounts|
|Source Of Data/Information||General ledger||Trial balance|
Key Differences Between Trial Balance And Balance Sheet
Since we are comparing trial balance vs balance sheet, let’s have a look at some of the key differences between them.
- In accounting, the trial balance is a statement that helps us to check the precision and accuracy of various debit and credit transactions that are recorded in the accounting ledgers. On the other hand, Balance sheet statements show the status and position of assets and liabilities of a firm.
- A trial balance is not a component of the company’s financial statements. On the other hand, a balance sheet is a detailed sheet and is often called the financial statement of the company.
- The trial balance does not have closing stock while the balance stock does contain opening stock.
- The trial balance is prepared at the end of each month, half-year, or financial year. On the other hand, the balance sheet is reported at the end of each month.
Some of the similarities are as follows.
- They are statements
- Consideration of Nominal, personal, and real accounts.
With the above explanations and discussions, we can simply conclude that both are types of double-entry bookkeeping procedures but vary from one another in terms of definition, purpose, functions, applications, sources, etc. In accounting, the trial balance is a statement that helps us to check the precision and accuracy of various debit and credit transactions that are recorded in the accounting ledgers. On the other hand, Balance sheet statements show the status and position of assets and liabilities of a firm.