The difference between a trial balance and balance sheet
/What is a Trial Balance?
A trial balance is a standard accounting report that lists the ending balance of every account as of a specific date, usually month-end. It is primarily used within the accounting department and by auditors. The report verifies that total debits equal total credits and provides the basis for preparing a working trial balance that incorporates adjusting entries. It can also support preparation of the balance sheet and income statement when financial statements are not generated automatically. Auditors use the trial balance to obtain ending account balances and to support financial statement testing and reconciliation procedures.
What is a Balance Sheet?
The balance sheet is part of the core group of financial statements. It may be issued only for internal use, or it may also be intended for such outsiders as lenders and investors. The balance sheet summarizes the recorded amount of assets, liabilities, and shareholders' equity in a company's accounting records as of a specific point in time (usually as of the end of a month). It is constructed based on the accounting standards described in one of the accounting frameworks, such as Generally Accepted Accounting Principles or International Financial Reporting Standards.
Comparing a Trial Balance and Balance Sheet
Given the previous descriptions of a trial balance and a balance sheet, the key differences between them are as follows:
Aggregation. The balance sheet aggregates multiple accounts, while the trial balance presents information at the account level (and is therefore more detailed). This means that it is easier to conduct detailed research into account balances by using a trial balance.
Standards. The balance sheet is structured in accordance with specific accounting standards, while there is no mandated format for a trial balance. That being said, the accounts appearing within a trial balance are usually stated in sequential order of their assets, liabilities, equity, revenue, and then expenses.
Usage. The balance sheet is intended for external use, while the trial balance is for use within the accounting department and by auditors. Internally, it is possible that the trial balance is only read by the general ledger accountant.
Reporting level. The balance sheet is a final report, while the trial balance is used to construct other reports (those being the balance sheet and income statement).
Trial Balance and Balance Sheet FAQs
Why can a trial balance appear correct even when the balance sheet is misstated?
A trial balance can appear correct because total debits still equal total credits even when transactions are recorded in the wrong accounts, omitted entirely, or posted for incorrect amounts on both sides. These errors preserve mathematical balance while causing individual asset, liability, and equity balances on the balance sheet to be misstated.
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