As a small business, you’ll likely have several forms, sheets, reports, and statements concerning your finances. Two reports that you’ll likely be dealing with are trial balances and balance sheets. Both of these are essential to understanding your finances, but there are many business owners who don’t understand the differences.
Simply put, a trial balance is an internal document that lists all of the ending balances (typically for the end of each month) of each of your accounts in the general ledger. For each account, debit and credit balances are listed in separate columns and then summed in order to determine that your debit balances are equal to your credit balances. This helps you find and correct any errors that may have occurred throughout the month when recording specific transactions.
While a trial balance is an internal document, a balance sheet is an external document typically intended for lenders and investors. Using the data from the trial balance, a balance sheet summarizes the shareholders’ equity, liabilities, and the assets of the company at a particular point in time (typically at the end of the year). This provides lenders and investors with a better idea of the financial health of the company. In that regard, while a trial balance is used to find recording errors, a balance sheet reports on the economic position of the company. A balance sheet will be one of five financial statements that are distributed, and it must be signed by an auditor.
Having clear and accurate financial records will ensure that your company reaches its financial goals. Here at Bookkeeping Plus, we customize our solutions to suit your business’ unique needs. Give us a call today at 609-977-1692 to learn more.