What is the difference between a trial balance and 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.
The trial balance is a standard report in most accounting software that lists the ending balance in every account as of a specific point in time (again, usually as of month-end). The report is only used within the accounting department and as a source document by a company's auditors. This report has multiple uses:
- To verify that the total dollar amount
of debits equals the total dollar amount of credits
- For use in constructing a working trial balance that includes adjusting entries
- For use in constructing a balance sheet and income statement, if there is no accounting software to do so automatically
- For use by auditors to obtain the ending balances in accounts
Thus, the differences between a trial balance and balance sheet 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).
- Standards. The balance sheet is structured in accordance with specific accounting standards, while there is no mandated format for a trial balance.
- Usage. The balance sheet is intended for external use, while the trial balance is for use within the accounting department and by auditors.
- Reporting level. The balance sheet is a final report, while the trial balance is used to construct other reports.