Every monetary transaction is recorded by the company in a proper way to find out the profitability of the concern. This procedure of recording a transaction in a systematic way is known as Accounting. The process starts with the tracking of every single transaction into Journal after that Ledger accounts are prepared with the help of a journal.
Next step is to prepare Trial Balance, then Trading and Profit & Loss account is prepared considering the trial balance. The final step is to prepare the Balance Sheet. Here in this article, we are going to discuss the difference between Trial Balance and Balance Sheet.
Content: Trial Balance Vs Balance Sheet
|Basis for Comparison||Trial Balance||Balance Sheet|
|Meaning||Trial Balance is the list of all balances of General Ledger Account.||The Balance sheet is the statement which shows the assets, equity and liabilities of the company.|
|Division||Debit and Credit columns||Assets and equity & liabilities heads|
|Stock||Opening stock is considered.||Closing stock is considered.|
|Part of Financial Statement||No||Yes|
|Objective||To check the arithmetical accuracy in recording and posting.||To ascertain the financial position of the company on a particular date.|
|Balances||Personal, real and nominal account are shown.||Personal and real account are shown.|
|Preparation||At the end of each month, quarter, half year or financial year.||At the end of the financial year.|
|Use||Internal Use||External Use|
Definition of Trial Balance
Trial Balance is a statement which lists all the balances of the Real, Personal and Nominal Account irrespective of Capital or Revenue account. It contains two columns debit and credit. If the transactions are recorded properly by giving dual sided effect and then posted systematically, then the total of both the columns would be identical.
But if the total of both the columns is distinct then the chances of errors in the recording and posting are there. However, some errors are not revealed through trial balance they are compensating errors, error of omission, error of commission, error of principle and others.
Definition of Balance Sheet
A Balance Sheet is a statement which represents the assets, liabilities and shareholder’s equity of the company is known as Balance Sheet. This statement contains two major heads in which it is classified: One is assets, which is divided into Current and Non – Current Assets. Current Assets are those assets which are readily converted into cash while the Non – Current Assets are those assets with the help of which the company runs the business.
Another part is Equity and Liabilities, where Equity contains the amount invested by the Equity Shareholders and Reserves & Surplus. Liabilities are divided into two sections Current and Non – Current Liabilities. Current Liabilities are the debt, which is to be paid off within one year while the Non – Current Liabilities means the debt, the repayment of which can be done after a certain time.
Key Differences Between Trial Balance and Balance Sheet
- Statement of debit and credit balances were taken from general ledger is known as Trial Balance. Statement of assets and equity & liabilities is known as Balance Sheet.
- Trial Balance does not include closing stock while the Balance Sheet does not include opening stock.
- Trial Balance checks the arithmetical accuracy in the recording and posting while balance sheet is prepared to determine the financial position of the company on a specific date
- Trial Balance is prepared after posting into ledger whereas Balance Sheet is prepared after the preparation of Trading and Profit & Loss Account.
- The Balance Sheet is the part of the Financial Statement while Trial Balance is not a part of the Financial Statement.
- Balances of all personal, real and nominal account are shown in the trial balance. On the contrary, Balance sheet shows the balances of personal and real account only.
- The trial balance is prepared at the end of each month, quarter, half year or the financial year. Conversely, the balance sheet is prepared at the end of each month.
- The trial balance is prepared for internal use only, however, the balance sheet is prepared for both internal and external use, i.e. to inform outside parties about the financial condition of the entity.
- Both are Statement.
- The heads of the two needs to be identical.
- Consideration of Real, Personal and Nominal Account.
There are many differences between the two statements. The Trial Balance and Balance Sheet are very dissimilar from each other. The preparation of Trial Balance is not compulsory at all, but the preparation of Balance Sheet is obligatory for every company. The Trial Balance is not read by the users of the financial statement or stakeholders, but Balance sheet is used by them.
Trial Balance can be prepared as per requirement of the organization while the Balance Sheet is prepared at a particular date which is usually at the end of the accounting year.