Most business owners (Also see Tricks From Millionaire Business Owners) who do not know much about the documents or reports necessary for their business may not be able to produce the reports or financial statements needed for the operation of the business. Some of the essential documents and statements include the income statement, balance sheet, cash flow statement, trial balance and so on. Business owners should generate them at regular intervals, for example, quarterly or annually, depending on the size of the business and other factors, so that they get to know the results of their business operations.
Some may think that these processes are too troublesome and decided to leave these crucial statements undone or generate them by themselves without knowing the correct way of doing so. This is not a good idea as doing so will only make the books of accounts to become messier and messier. The right way of dealing with this problem is by hiring bookkeeping services in Singapore and let the professionals complete them for you.
In this article, we are going to shed light on the balance sheet and the trial balance. The balance sheet is one of the most important financial statements, and it shows the company’s assets, liabilities, as well as equity at a particular time. As against, the trial balance is a report that presents the ending balances of the accounts in the general ledger in the debit and credit column.
In the balance sheet (Also see What is the Relationship between the Profit and Loss Statement and the Balance Sheet?), the accountants can categorise the assets of a company into two different groups, which are current assets (assets that can be converted into cash easily) and non-current assets (assets that take more than a year to realise their full values). There are two different groups of liabilities too, which are the current liabilities (for example, accounts payable, short-term debts, etc.) and non-current liabilities (for example, long-term financial debts, etc.). The last section is the shareholder’s equity. It includes the paid-in capital and retained earnings, where the former can be subdivided into preferred stock, common stock, and so on.
A trial balance records the total of the ending balance that the accountants take directly from the ledger accounts to determine if the sum of debit as well as the sum of credit are equal. If they do not match, the accountants need to check whether there are any errors in the records or not. In some occasions, the accountants may create a suspense account to balance the trial balance temporarily before they can find the error and amend it.
The accountants generate a trial balance with the purpose of recording the ending balances of all the ledger accounts. They will use the trial balance to identify whether the sum of debit balance and credit balance equal to each other. On the contrary, accountants will use the balance sheet (Also see Reading a Balance Sheet) to see if the total assets (Also see Introduction to Asset Accounts) of the company are the same as the sum of its liabilities and equity. This financial statement can tell the business owners about the financial position of their companies accurately too.
Business owners will often use balance sheet for external purposes, while trial balance serves for internal purposes most of the time. Thus, during an audit, the auditor will focus more on the balance sheet when compared to the trial balance.