WHAT IS A TRIAL BALANCE ?
Trial Balance shows the total closing balance of all the ledger accounts for the specific period i.e. for a month, for a quarter, for a six month, and for a whole year. It is a list of all real, personal and nominal account balances compiled from the individual ledger accounts.
As per the double entry book keeping system, there is always the same amount of the Credit corresponding to every Debit. Hence, the total of both debit and credit side should be equal to ensure the arithmetical accuracy of accounts.
METHODS OF TRIAL BALANCE :-
There are 3 methods of preparing the trial balance, namely-
- Balance method – In this method the balance of debit & credit side of all ledger accounts is taken.
- Total method – In this method, the totals of debit & credit side of all ledger accounts is taken.
- Compound method – This method is a combination of the above two methods.
WHAT IS A LEDGER ?
A ledger is often defined as a book of accounts. All transactions accounted for in the journal are transferred to i.e.: posted to each respective ledger account. Thus, it is a comprehensive record of all business transactions recorded account wise.
It contains the information that is required to prepare financial statements & includes accounts for assets, liabilities, owners’ equity, revenues and expenses.
DIFFERENCE BETWEEN TRIAL BALANCE & LEDGER :-
The following points highlight the main differences :-
- Trial balance only shows the ending balance of each general ledger account . On the other hand, General Ledger provides detailed transaction details for each account build or outstanding in the company for a particular financial period.
- Ledger is prepared for classifying various accounts like assets, liability, revenue etc. While trial balance is prepared to check the arithmetical accuracy of the accounts.
- A ledger is a summarized form of all the journal entries while the trial balance is a summarized form of all ledger accounts.
- Transactions are recorded during the year in General Ledger while a Trial Balance is prepared at the end of accounting year.
- A ledger is prepared in a ‘T’ format whereas a Trial Balance is prepared in a columnar format.
Thus, Preparing general ledger and trial balance are two prime actions in the accounting cycle which are necessary for the preparation of financial statements & must be done with complete accuracy.