Difference Between General Ledger and Trial Balance
The primary difference between general ledger and trial balance is that general ledger prepared by the company is the set of the different master accounts in which the detailed transactions of the business are present having all the accounts, whereas, the trial balance of the company has only the ending balance present in those accounts of the company.
Preparation of general ledger and trial balance are two primary actions in the accounting cycle. The critical difference is that general ledger is a set of accounts that contain detailed transactions conducted. At the same time, the trial balance is a statement that records the general ledger ending balances.
- A general ledger is the principal set of accounts and primary accounting records of a company. 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. conducted within a financial year. The information in general ledgers is collected from journals, which is the primary book of accounts. It includes debit and credit entries of transactions. It is generally separated as a different asset class like owners’ equity, assets, liabilities, revenues, and expenses. All the amounts related to the respective business are posted from the journal. The ledger may be prepared for any time frame as and when required by the Organization, be it a Fiscal year or Calendar year.
- A trial balance is a statement that shows the total balance amounts of all the ledger accountsLedger AccountsLedger in Accounting, also called the Second Book of Entry, is a book that summarizes all the journal entries in the form of debits & credits to use for future reference & create financial statements. for the specific period, i.e., for a month, quarter, semi-annually, 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. and presenting them in a single worksheet as 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 transaction in an organization and steps where general ledger and Trial balance come into the picture:
The key differences are as follows –
- Amount & nature of information: The general ledgerGeneral LedgerA general ledger is a book of accounts that records the everyday business transactions in separate ledger accounts. The entries made in a ledger can be verified by getting a NIL balance on summing up all the ledger account amounts in the trial balance. contains all accounts of an organization with its transactions. It is basically 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 that have an ending balance of general ledger.
- Usage: For accountants, general ledger serves as 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 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. 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 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 shares of the company. General Ledger is not available for such use.
General Ledger vs. Trial Balance Comparative Table
Although both are important accounting cycle, there are many differences between them. They both have their respective importance and timing in the business cycleBusiness CycleThe business cycle represents the expansion and contraction of the economy that occurs due to ups and downs in the gross domestic product (GDP) of a country. It is experienced over the long term and goes parallel with the natural growth rate.. We can say in brief a general ledger is an account wise summary of all monetary transactions. In contrast, a trial balance is the debitThe DebitDebit is an entry in the books of accounts, which either increases the assets or decreases the liabilities. According to the double-entry system, the total debits should always be equal to the total credits. and credit balance of such ledger accounts.
It is essential to understand the difference between the general ledger and trial balance accurately since both represent crucial steps in the preparation of 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. like Balance sheets.
We can conclude that Trail 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 along with infographics and comparison table. You may also have a look at the following articles –