A balance sheet and a trial balance are two financial documents that are very essential for any company.
Every firm, company, and organization keeps detailed records of its profits and losses.
These accounts illustrate the organization’s financial situation. There are two ways to display the credit and debit balances.
They are known as the trial balance and the balance sheet. Both are required to comprehend the company’s financial situation. They are different from each other in a number of ways.
The difference between the trial balance and the balance sheet will be discussed below.
What is a trial balance?
A trial balance is a kind of accounting report used to verify the accuracy of various credit and debit transactions recorded in ledgers.
Simply put, it is a statement that displays the total of credits and debits from all ledger accounts in one place.
The trial balance is an essential part of bookkeeping because it shows the concluding status of all accounts. The purpose of creating a trial balance is to make the preparation of financial statements easier.
What is a balance sheet?
A balance sheet is defined as a statement that shows the enterprise’s liabilities, assets, and shareholder equity.
It is an essential component of financial modeling and accounting.
The balance sheet is also known as a financial position statement or a net worth statement.
You can define it by the equation “Assets = Liabilities + Equity”.
Importance: trial balance Vs. balance sheet
The trial balance serves as a prelude to the production of financial statements in addition to an assessment of arithmetic accuracy.
It also results in the estimation of the balances of all the ledger accounts, that are used to generate financial statements.
It aids in the correcting of mistakes and makes necessary adjustments. Trial balance also aids in the comparison of the previous year’s balances with the current one.
The significance of the balance sheet as a component of a company’s financial statement could be comprehended in conjunction with the documents of income statements and cash flows.
All of these factors work together to provide interested parties with information about the company’s financial situation. It explains what that organization owes and owns.
The key difference between trial balance and balance sheet
- The trial balance is indeed an internal statement used within the organization whereas a balance sheet is prepared for external use and is thus an external statement.
- Trial balances are kept on a monthly, quarterly, semi-annual, and annual basis however, A balance sheet is created once a year.
- A trial balance does not need to be authorized by an auditor, whereas a balance sheet should be approved by an auditor.
- The Balance Sheet is included in the Financial Statement, whereas the Trial Balance is not.
- The trial balance verifies the arithmetic accuracy of the recording and posting, whereas the balance sheet is created to assess the company’s financial position on a specific date.
Conclusion
Both the balance sheet and the trial balance are statements and are critical to the company’s financial stability.
They keep track of the profits and losses.
As a result, both the trial balance and the balance sheet are essential aspects of the company/organization.
For more information on Trail Balance and Balance Sheet, the Meru Accounting team can answer all your queries and even sort out your finances.
