Balance Sheet vs Trial Balance
Companies prepare their financial statements at the end of the accounting period to obtain a clear understanding of the way resources have been utilized to improve profitability, and the manner in which the company’s assets, liabilities, capital, income and expenses have been managed. In order to do this, the firm prepares a number of financial statements that include a balance sheet and trial balance. The balance sheet and trial balance are both prepared by firms under the requirements set out in the accounting standards and regulations, even though they differ in terms of what is recorded in each statement and the purpose for which each is prepared. These differences are clearly explained in the article below.
The balance sheet of a company includes vital information regarding the company’s fixed and current assets (such as equipment, cash, and accounts receivable), short term and long term liabilities (accounts payable and bank loans) and capital (shareholder’s equity). An important point to note in the balance sheet is that the total assets should equal the total of the liabilities and capital, and the capital should represent the difference between the assets and liabilities. The balance sheet is prepared, on a specific date, hence the words ‘as at’ at the top of the sheet. For example, if I am writing up a balance sheet for the 30th of October 2011, I would write ‘as at 30th October 2011’ on the heading of the statement, to show that the information represented in the balance sheet is a snapshot of the firm’s financial situation at that date.
The trial balance is a statement that lists all the accounts that have been prepared in the general ledger, along with the balances of those accounts at the end of the financial period. The purpose for preparing a trial balance is to record the debit balances as well as the credit balances on the account and verify if the balances on both the debit and credit side are equal. If the balances are equal, this implies that the accounting entries have been recorded correctly, if not the accountants may recheck the entries to ensure that no mistakes have been made. A trial balance, which has a debit balance equal to a credit balance, implies that the accounting equation of Assets = Liabilities + Capital is verified in the accounting data.
What is the difference between balance sheet and trial balance?
Trial balances and balance sheets are prepared by company accountants, to verify the accounting data recorded and to obtain a clear picture of the company’s financial health. The two, however, have distinct differences. The trial balance is an internal document that is only used by the internal accounting staff in order to verify whether the accounting data recorded is accurate. The balance sheet, on the other hand, is an external document and is prepared so that it may be used by the investors, suppliers, customers, employees and the general public to obtain an understanding of the firm’s financial position at the end of the accounting period. The trial balance contains balances from all accounts of the business while the balance sheet only contains information from the assets, liabilities and capital accounts. Furthermore, the trial balance is prepared at the beginning of the financial statement preparation and the balance sheet is prepared at the end.
In a nutshell:
Trial Balance vs Balance Sheet
• Trial balance includes balances from all the accounts prepared in the general ledger, and the balance sheet includes only the relevant data from the asset, liability and capital accounts.
• Trial balance is an internal document used by the accounting personnel to verify that accounting entries have been entered accurately. The balance sheet is an external document available for company’s stakeholders and the general public to obtain an understanding of the company’s financial performance.
• The trial balance is prepared first, while the balance sheet is prepared last after the profit and loss statement has been drawn up.