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Difference Between Trial Balance and Balance Sheet in Detail

Trial balance and balance sheet are two important financial accounting documents used to organize and report a company's financial information. They serve distinct purposes within the accounting process and provide different perspectives on a company's financial position. While both the trial balance and the balance sheet are essential components of the accounting and financial reporting process, they serve different purposes and are prepared at different stages of the accounting cycle. Understanding the key distinctions between these two financial documents is crucial for accurate financial management and reporting.

Difference between trial balance and balance sheet is a crucial topic to be understood for the commerce related exams such as UGC-NET Commerce Examination.

Find out about Cost and management accounting.

Trial Balance and Balance Sheet

Find the details as mentioned below.

Understanding a Balance Sheet

A Balance Sheet is an accounting statement that reveals an organization's financial position by showcasing its liabilities, assets and shareholder’s equity. The two principal groups that the balance sheet is divided into are assets and liabilities. Assets can be further split into Non – Current Assets and Current assets.

Current Assets are those assets that can be easily converted into cash. In contrast, Non – Current Assets are the assets that support the enterprise in conducting its daily operations.

Also read about financial cost and management accounting.

Understanding Trial Balance

A Trial Balance is an accounting tool used to verify the accuracy of the debit and credit transactions recorded in the ledgers. In layman's terms, it is a statement that consolidates all the debits and credits from various ledger accounts.

Trial balance plays a crucial role in bookkeeping as it provides an overall view of all the accounts. The primary objective of creating a trial balance is to simplify the preparation of financial statements.

Write about Environmental Accounting.

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What is the Difference Between Trial Balance and Balance Sheet

Let's delve into some of the differences between a trial balance and a balance sheet:

-

Trial Balance

Balance Sheet

Definition

A Trial balance is a statement that consolidates the balances from all ledger accounts

A Balance sheet is a financial statement that displays the position of the assets and liabilities of an organisation at a specific point in time

Application

The trial balance is mainly used to verify the equality between debit balance and credit balance

The balance sheet is primarily used to ascertain the financial position of the company

Component of Financial Statement

Not a part of the financial statement

A crucial part of the financial statement

Purpose of Creation

It is designed for internal users of information

It is designed for external users of information

Frequency of Recording

A Trial balance is recorded monthly, quarterly, half-yearly, and annually

A Balance sheet is prepared annually

Source of data

Data is gathered from the General ledger

Data is collected from the trial balance

Also Read: How to Prepare a Trial Balance?

Conclusion

The trial balance and balance sheet serve different roles within the accounting process. The trial balance is an internal document used to ensure the accuracy of ledger accounts, while the balance sheet is an external financial statement that presents a snapshot of a company's financial position. Both are important components of the financial reporting process, with the balance sheet being a critical tool for assessing a company's financial health.

The difference between trial balance and balance sheet is a vital topic as per several competitive exams. It would help if you learned other similar topics with the Testbook App.

Find out about the Income tax: Basic concepts.

Difference Between Trial Balance and Balance Sheet FAQs

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