Difference Between General Ledger and Trial Balance

Preparation of the general ledger and trial balanceTrial BalanceTrial Balance is the report of accounting in which ending balances of a different general ledger are presented into the debit/credit column as per their balances where debit amounts are listed on the debit column, and credit amounts are listed on the credit column. The total of both should be equal.read more are two primary actions in the accounting cycle. The critical difference is that a general ledger is a set of accounts containing complex transactions. At the same time, the trial balance is a statement that records the general ledger ending balances.

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  • A general ledger is a company’s principal set of accounts and primary accounting records. The ledger provides a complete record of accounting transactionsAccounting TransactionsAccounting Transactions are business activities which have a direct monetary effect on the finances of a Company. For example, Apple representing nearly $200 billion in cash & cash equivalents in its balance sheet is an accounting transaction. read more conducted within a financial year. The general information in general ledgers is collected from journals, the primary book of accounts. It includes debit and credit entries of transactions. It is generally separated different asset classDifferent Asset ClassAssets are classified into various classes based on their type, purpose, or the basis of return or markets. Fixed assets, equity (equity investments, equity-linked savings schemes), real estate, commodities (gold, silver, bronze), cash and cash equivalents, derivatives (equity, bonds, debt), and alternative investments such as hedge funds and bitcoins are examples.read more like owners’ equity, assets, liabilities, revenues, and expenses. All the amounts related to the respective business are posted in the journal. The ledger may be prepared for any time frame as and when required by the Organization, be it a Fiscal yearFiscal YearFiscal Year (FY) is referred to as a period lasting for twelve months and is used for budgeting, account keeping and all the other financial reporting for industries. Some of the most commonly used Fiscal Years by businesses all over the world are: 1st January to 31st December, 1st April to 31st March, 1st July to 30th June and 1st October to 30th Septemberread more or Calendar year.A trial balance is a statement that shows the total balance amounts of all the ledger accountsLedger AccountsLedger in accounting records and processes a firm’s financial data, taken from journal entries. This becomes an important financial record for future reference. It is used for creating financial statements. It is also known as the second book of entry.read more for the specific period, i.e., for a month, quarter, semi-annually, or annually. In other words, taking ledger balanceLedger BalanceA ledger balance is an opening balance that remains available during the start of each business day. It comprises of all the deposits and withdrawals, used in the calculation of the total funds left in an account at the end of the previous day.read more and presenting them in a single worksheet on a particular date is Trial Balance. It gives a quick overview of the balances of different heads of accounts.

 General Ledger vs. Trial Balance Infographics

Example of General Ledger

Example of Trial Balance

Suppose we have the following information on XYZ Ltd.

Solution: We need to put respective balances in a suitable debit or credit head.

Flow chart showing the different financial transactions in an organization and steps where general ledger and Trial balance come into the picture:

Key Differences

The key differences are as follows –

  • Amount & nature of information: The general ledgerGeneral LedgerA general ledger is an accounting record that compiles every financial transaction of a firm to provide accurate entries for financial statements. The double-entry bookkeeping requires the balance sheet to ensure that the sum of its debit side is equal to the credit side total. A general ledger helps to achieve this goal by compiling journal entries and allowing accounting calculations.
  • read more contains all an organization’s accounts with its transactions. It is a database of information. Whereas the trial balance only provides the ending balance of each of those accounts. It’s a derivation of a ledger.Level of Summary: The general ledger may have a hundred pages as per the volume of transactions. In contrast, the trial balance has only a few pages with an ending balance of the general ledger.Usage: For accountants, the general ledger is the primary source of information while examining books of accounts. On the other hand, the trial balance is used to measure the mathematical accuracy of all debits and credits, as the totals of both should be equal to verify that the books are in balance. At the end of the audit of the organization, the auditorsAuditorsAn auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country’s local operating laws.read more have final balances for all accounts available in trial balance so that they can do their job more efficiently. They use the general ledger to trace balances back to individual transactions of each head.Account classification: Posting in the general ledger is done according to the class of accounts, but there is no such classification of accounts in the trial balance.Time Period: General Ledger records transactions during the accounting year of the organization for any period, whereas the trial balance is generally prepared on the final day of the accounting year.For investor use: Trial Balance is widely used by an investor for a study if they want to put money in company shares. General Ledger is not available for such use.

General Ledger vs. Trial Balance Comparative Table

Although both are important accounting cycleAccounting CycleAccounting Cycle refers to the process of recording transactions and summarizing them for the preparation of financial statements. The objective is to generate useful information in the form of three financial statements namely Income Statement, Balance Sheet and Cash Flows. read more, there are many differences between them. They both have their respective importance and timing in the business cycleBusiness CycleThe business cycle refers to the alternating phases of economic growth and decline.read more. In brief, a general ledger is an account-wise summary of all monetary transactions. In contrast, a trial balance is the debitThe DebitDebit represents either an increase in a company’s expenses or a decline in its revenue. read more and credit balance of such ledger accounts.

 

  • Assets like Cash, Accounts ReceivableAccounts ReceivableAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year.
  • read more, Land, Equipment, etc. Liabilities like Loans Payable, Accounts PayableAccounts PayableAccounts payable is the amount due by a business to its suppliers or vendors for the purchase of products or services. It is categorized as current liabilities on the balance sheet and must be satisfied within an accounting period.read more, etc. Stockholders’ equity Operating revenuesOperating RevenuesOperating revenue is defined as revenue earned by an individual, corporation, or organization from the core activities that they undertake on a regular basis. There are several methods to earn revenue, but operational revenue is earned by the core business activities that the organization undertakes in its daily operations.read more like Sales, Service Fees, etc.; Operating expensesOperating ExpensesOperating expense (OPEX) is the cost incurred in the normal course of business and does not include expenses directly related to product manufacturing or service delivery. Therefore, they are readily available in the income statement and help to determine the net profit.read more like Salary Expense, Rent Expense, etc. Non-operating revenues and gains like Investment IncomeInvestment IncomeInvestment income is the earnings made from allocating funds in financial instruments or assets like securities, mutual funds, bonds, property, etc. It includes dividends on bonds and interest received on bank deposits, profits and capital gain from the sale of real estate and securities. read more, etc.; Non-operating expensesNon-operating ExpensesNon operating expenses are those payments which have no relation with the principal business activities. These are the non-recurring items that appear in the company’s income statement, along with the regular business expenses.read more and losses like Interest Expense, etc.;

• The unadjusted trial balanceUnadjusted Trial BalanceAn unadjusted trial balance is the account balances reported directly from the general ledger without adjusting for the year-end journal entries. It acts as a starting point for analyzing account balances and adjusting entries.read more,

• The adjusted trial balanceAdjusted Trial BalanceAdjusted Trial Balance is a statement which incorporates all the relevant adjustments. Although it is not a part of financial statements, the adjusted balances are carried forward in the different reports that form part of financial statements. read more and,

• The post-closing trial balancePost-closing Trial BalancePost Closing Trial Balance is the list of the all the balance sheet items along with their balances excluding the zero balance accounts and is used for the purpose of verification that temporary accounts are properly closed and the total of balances of all the debit accounts and all the credit accounts are equal.read more

Conclusion

It is essential to understand the difference between the general ledger and trial balance accurately since both represent crucial steps in preparing year-end financial statementsFinancial StatementsFinancial statements are written reports prepared by a company’s management to present the company’s financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more like Balance sheets.

We can conclude that Trial Balance is the heart of any business. It is a summary of the business activities that occurred in an accounting period wherein the business activities are shown through different ledgers.

This article has been a guide to General Ledger vs. Trial Balance. Here we discuss the top differences between the general ledger and trial balance, infographics, and a comparison table. You may also have a look at the following articles –

  • What is Subledger in Accounting?General Journal vs General LedgerThree Way MatchingTrial Balance vs Balance Sheet