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Distinguish between trial balance and balance sheet
Let us understand the concept and importance of a trial balance and a balance sheet, before learning about their differences.
Concept of Trial balance
Company's accounting department will generate this internal report. Trial balance consists of the list of general ledger accounts and their balances. It shows the credit and debit balances amounts.
Later these columns are summed up and consolidated to show that the credit balances and debit balances are equal.
Importance -
It provides arithmetical accuracy and acts as a precursor in preparing the financial statements. Trial balance is used for verification of amounts from various ledgers. It also determines the balances of different ledgers accounts.
Moreover, it helps in error rectification by making the adjustments in particular accounting years. Comparative analysis is done by comparing the current year trial balance with the previous year trial balances.
Concept of Balance sheet
It is also called a statement of financial position, which consists of balances of assets, liabilities and equity stockholders. It is summarised, reports the balances and is prepared on last date of the accounting period.
Importance -
It is one of the important financial statements of the company. Balance sheet, cash flow documents and income statements will combine to get the financial position of the company. This information is useful to the investors. Based on insights (operations and financial health) the investors decide whether to invest in a particular company or not.
Differences
The major differences between a trial balance and a balance sheet are as follows −
| Trial balance | Balance sheet |
|---|---|
| Statement of debit balance and credit balance. | Statement of assets, liability and equity. |
| Closing stock is not included. | Opening stock is not included in the balance sheet. |
| Arithmetical accuracy of recording and posting is checked. | Determines company's financial position. |
| Prepared after postings are posted in the ledger. | Next step after preparation of trading account and profit and loss account. |
| Not part of the financial statement. | Part of the financial statement. |
| Balances of all personal, nominal and real accounts are shown. | Shows balances of personal and real accounts. |
| Prepared monthly/quarterly/half yearly/financial year. | Prepared monthly. |
| Internal use only. | Both internal and external use. |
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