Despite the fact that ledger and trial balance are both parts of the same accounting cycle, there is a significant distinction between the two. In the business cycle, they are both relevant and at different times. Accounting in the journal, posting to ledger accounts, and generating the trial balance are all part of the accounting cycle from where transactions move to the financial statements.
Ledger vs Trial Balance
The main difference between a ledger and a trial balance is that a ledger keeps track of all the monetary transactions account-by-account, whereas a trial balance keeps track of the credit and debit balance of the accounts. A ledger is made after journals and before a trial balance, whereas a trial balance is made after a ledger.
A ledger is a book that keeps track of all transactions involving a certain account throughout the course of a financial year. It’s also known as the major book of accounts, and General Ledger is the sum of all the individual ledger accounts. Accounts for various sorts of fixed and current assets, revenue and costs, liabilities, profits, and losses are all included in the ledger accounts.
The trial balance is a list of all actual, personal, and nominal account balances produced from the ledger accounts individually. It is written in a columnar manner, with columns on the left showing debit balances and columns on the right reflecting credit balances. It is the basis of financial statements.
Comparison Table Between Ledger and Trial Balance
| Parameters of Comparison | Ledger | Trial Balance |
| Meaning | In these, the accountant has to showcase all the transactions made separately related to all types of accounts. | It shows the equality of debit and credit. |
| Objective | It gets the balance of each account. | It authenticates the accuracy of recording and posting all of the business transactions. |
| Dependency | Dependent on Journal Daybook | Dependent on the ledger account and subsidiary books. |
| Financial Statements | It is the basis of trial balance so it’s indirectly important. | It is the basis of financial statements so it’s very important. |
| Preparation Time | It is prepared daily. | It is prepared before the financial statements are prepared. |
| Classification of Accounts | Assets, liabilities, capital, expenses, and income. | Accounts with debit balance and accounts with a credit balance. |
| Accounts Included | It shows all the accounts separately by preparing a separate ledger for each account. | It also includes all types of accounts but shows them in a single statement together. |
| Hierarchy in Account Style | It is made after journals and before a trial balance. | It is made after the ledger. |
| Information | Comprehensive | Limited |
What is Ledger?
A general ledger is a master collection of accounts that summarizes all of an entity’s transactions. All of the individual accounts required to record a business’s assets, liabilities, equity, income, cost, gain, and loss activities are found in the general ledger.
These are the books of accounts in which the accountant must independently record all transactions relating to all forms of accounts that have previously been entered in the journal Daybook. The list is kept in alphabetical order.
We can receive complete information about any single account using a ledger since all linked journal entries are printed on continuous pages of this book.
However, because all transactions in the journal are recorded date-wise, we must verify all pages of the journal daybook, and obtaining the balance of a specific account from the journal is quite difficult.
The ledger is the main account book, and it contains a complete list of all accounts that are affected by company operations. As a result, the ledger provides a detailed account-by-account record of all corporate transactions.
You may utilize your ledgers for audits, loan applications, and financial reporting. The key accounts in your general ledger are generally Assets, Liabilities, Equity, Revenue, and Expenses.
What is Trial Balance?
The trial balance is a report that lists the closing balances in each general ledger account at the end of an accounting period. The report is primarily used to confirm that the total of all debits matches the total of all credits, indicating that the accounting system is free of unbalanced journal entries that would make accurate financial statements hard to create.
The entire closing balance of all ledger accounts for a certain time is shown in the trial balance. In a double-entry accounting system, every Debit is always matched by the same amount of Credit. As a result, the amount of both columns (Debit & Credit) of the trial balance must always be identical.
The trial balance will tally if transactions are properly recorded using a double-entry accounting system. The trial balance is a summary of all account balances after all business transactions for a certain accounting period have been recorded. The trial balance is used to ensure that all of the accounts are in order.
It’s used to create financial statements such as the Balance Sheet and Profit and Loss Account. It aids in determining the mathematical correctness of financial transactions recorded in a company’s ledger records.
You may utilize your trial balance to examine and predict your books on a monthly basis.
Main Differences Between Ledger and Trial Balance
- A ledger showcases all the transactions made separately related to all types of accounts, whereas a trial balance showcases the equality of credit and debit.
- A ledger gets the balance of each account, and the trial balance authenticates the accuracy of recording and posting all of the business transactions.
- A ledger is classified into assets, liabilities, capital, expenses, and income, whereas a trial balance is only classified into credit and debit.
- A ledger includes all the accounts separately by preparing a separate ledger for each account. A trial balance also includes all types of accounts but shows them in a single statement together.
- A ledger is made after journals and before a trial balance, and a trial balance is made after a ledger.
- Ledgers include comprehensive information about the transactions, whereas trial balances include limited information.
Conclusion
While both the ledger and the trial balance are necessary components of a double-entry accounting system, they serve different purposes. Accountants and auditors can track corporate transactions using ledgers, which are part of the fundamental books of accounts.
Investors do not have access to ledgers; instead, they must rely on the trial balance and financial statements to assess a company’s financial status.
References
- https://www.jstor.org/stable/240975
- https://www.jstor.org/stable/242165