Trial Balance vs Balance Sheet

The primary difference between a trial balance vs balance sheet is that the trial balance only lists the end balance in every account while the balance sheet deals with aggregates of a lot of ending account balances according to every line item.

What are Trial Balance Sheets?

A trial balance sheet is any standard report that mostly in any accounting software shows the ending balance in each account at a specified point in time. This point in time is usually the end month. It could help if you knew that the report is only utilized by the accounting department and plays a significant role as a source document for company editors. Below are the uses of the report.

Functions of the Report

• It is used by auditors to obtain the ending balances in each account

• It is used to construct a working and viable trial balance with adjusting entries included.

• The report is used for verification of the total dollar amount of debits that are equal to the total dollar amount for credits

• The report obtained is used to draft an accurate balance sheet and an income statement. This happens in case the accounting software is not available to do the job automatically

What is the Difference Between Trial Balance vs Balance Sheet

After understanding what a trial balance and balance sheet look like and how they are prepared, it could help if you got the difference them.

Differences Between TB and BS

1. Aggregation. The trial balance only provides important financial information at the account level whereas the balance sheet is used to aggregate multiple accounts. This makes the trial balance a more detailed financial tool.

2. Reporting Level. The trial balance is mainly used in the construction of other financial reports while the balance sheet offers the final report.

3. Usage. The trial balance is mainly used by the accounting department and members within it such as auditors while the balance sheet is used outside the department.

4. Standards. The trial balance is quite different from the balance sheet in the sense that it has no mandated format while the balance sheet is designed according to specified accounting standards.

5. Recording Frequency. The trial balance is always recorded on a monthly, quarterly, half-yearly, and yearly basis while the balance sheet is only prepared yearly.

6. Data Source. Data for the balance sheet is collected from a general ledger while data for the balance sheet is obtained from the trial balance.

7. Their Application. The trial balance is applied when ascertaining whether the credit balance and debit balance tally or not while the balance sheet is applied when determining the company’s accuracy in its current financial position.

Should the Trial Balance and Balance Sheet Match?

Yes. There is a need for the balance sheet and trial balance to match since the balance sheet is obtained from the trial balance. Remember the trial balance consists of information about all accounts from the company and so these accounts should be seen in the balance sheet.

However, the trial balance includes the income statement accounts and these will not be shown in the balance sheet. They are just added to the retained earnings account to ensure that it provides the closing balance.

To sum it all up, it is not quite possible to ensure that all accounts are included in a trial balance and reflect them on the balance sheet separately. You should always ensure that the amounts in both matches.

What is the Importance of a trial balance

Whenever you are handling a job tasked to you, it could help if you checked and verify the job’s level with accuracy. The same applies to the trial balance. We have already mentioned that the trial balance plays a significant role in ensuring that there is arithmetical accuracy in ledger accounts.

Assuming that all accounts are recorded correctly on the balance sheet, this calls for equality among the total assets and liabilities, and equity. The trial balance should reflect the same in the sense that the total credit and debit are similar.

Therefore, when you need to check for the accuracy of your company’s ledger postings, you should prepare the trial balance statement. Here are the reasons why the trial balance is significant.

• It is used in preparing financial statements like the Cash Flow Statement, balance sheet, and profit and loss account.

• It helps in correcting errors

• It is used in comparative analysis

• It helps you to make decisions concerning your budget

• It is used to check the arithmetical accuracy

• It helps significantly in the preparation of audit reports

• It helps in adjustments in adjustment accounts like the closing stock, prepaid expenses, and outstanding liabilities to mention but a few.

What are The 3 Golden Rules of Accounting?

Each process is characterized by a number of rules that are applicable universally and are followed by all. The rules are quite essential because they are for the focal functions. Likewise, accounting has its three golden rules. Before diving deep into these golden rules, let’s begin by understanding some concepts about accounting.

Accounting has been operational for a while now and its roots can be dated back to Mesopotamia. Luca Pacioli who is considered the father of accounting was the first person who talked about Double-Entry bookkeeping. The practice is still used in the modern world. Research confirms that modern accounting began in Scotland around the nineteenth century.

Accounting is therefore defined as the process of communicating, measuring, and processing non-financial and financial information related to economic entities like corporations and businesses.

The Tree Golden Rules

• Debit all that comes in and credit what gets out

• Debit the receiver and credit balances the giver

• Debit the entire losses and expenses and credit your entire gains and incomes

How Do You Prepare a Trial Balance From a Balance Sheet?

To prepare your trial balance successfully, you first need to have a list of all your ledger accounts together with their credit or credit amounts. You are recommended to do this so that you can easily determine if the debits equal the credits in the process of recording. Preparation of a trial balance ensures that all your financial accounts remain error-free.

Preparation of a Trial Balance

1. Before preparation, make sure that your ledger account is balanced. The balance is provided by the difference sum of the debit entries and the sum of the credit entries.

2. Create a worksheet with eight columns. The column header is for the account number and account name while the other columns are for credit and debit balances.

3. Ensure that you transfer every ledger account to the trial balance worksheet together with its account number, account balance, and account name. This should be noted in the required debit or credit column.

4. Sum up the amount in the credit and debit columns. The totals should always be similar ideally in an error-free trial balance. If the totals are similar, close the trial balance.

Do Trial Balance Include Profit and Loss

Yes. According to the definition, a trial balance is a report that encompasses balances of every general ledger account of a company for a certain time. All accounts reflected in the report are closely related to common accounting items like gains, losses, expenses assets, revenues, liabilities, and equity. Its primary function is to identify the balance of credit and debit entries from various transactions recorded in a ledger.

Is Trial Balance Part of Financial Statements?

Apart from detecting errors, the trial balance is used to adjust the ledgers general entries. It is prepared once the total credits and debits are balanced. Even though it is not officially a financial statement, it’s purposely meant for internal use since it cannot be distributed to individuals outside the organization.

Why is the Balance Sheet Called Second Trial Balance?

It is called so because it has the asset side on the left side and the liabilities on the right side. Those accounts that have a debit balance are indicated on the asset side while those with credit balance are indicated on the liabilities side and the total of both sides should balance.

What is the Relationship between Trial Balance and Balance Sheet?

The relationship between the two is that they are both used in monitoring the account’s credit and debit levels thus allowing for easy business management. Despite their differences, the two have quite a strong relationship.

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