General Ledger vs Trial BalanceDifferences Explained with Examples
Difference Between General Ledger and Trial Balance
The general ledger contains all accounts and amounts of every transaction made in one accounting period.
It is a detailed representation of every successful financial transaction.
The Trial balance only contains the ending balances of accounts derived from the general ledger.
One of the initial steps in the accounting cycle is the preparation of the general ledger and trial balance.
- The general ledger is a detailed representation of all accounting transactions made related to the company’s operation. The accounting information in the general ledger is derived from the primary book of accounts: the journal. The general journal follows double-entry bookkeeping that has debit and credit account balances. The transactions are recorded depending on which category they belong. Examples are Assets, Liabilities, Equity, Revenues, and Expenses. There are two accounting periods that an organization may choose which will perfectly suit their business operations – the calendar or fiscal year.
- The trial balance can be prepared monthly, quarterly, semi-annually, or annually. The amount only recorded in the trial balance is the ending balance of every account derived from the general ledger. It summarizes all pertinent financial transactions in one accounting period.
General Ledger vs. Trial Balance
General Ledger vs. Trial Balance | |
| General Ledger | Trial Balance |
| Described as books of accounts | Summarizes the ending balances of recorded accounts in the general ledger |
| Content | |
| Contains all records of the company’s business transactions that are related to its Assets, Liabilities, Revenue, and Expenses accounts | Intended for internal use that provides the balances of debit and credit accounts derived from the general ledger |
| Purpose | |
| Summarizes every asset, liability, equity, revenue, and expense account | Checks that the debit and credit balances are equal |
| Classifications of types along with examples | |
| The seven major categories of the general ledger are: | The three types of Trial Balance |
| Assets (Cash, A/R, PPE, etc.) | Unadjusted Trial Balance |
| Liabilities (Loans payable, A/P, etc.) | Adjusted Trial Balance |
| Operating Revenue (Sales, Service Revenue, etc.) | Post-Closing Trial Balance |
| Operating Expenses (Salaries, Rent, Utilities exp., etc.) | |
| Non-Operating Revenue ( Investment income, etc.) | |
| Non-Operating Expense (Interest exp, etc.) | |
Example of General Ledger
Below we will give two examples of a General Ledger. The first will be CDS Ltd’s Cash Account and the second will be CDS Ltd’s Owner’s Equity Account.
CDS Ltd.
Cash Account
| Dr. | Cr. | ||||||
| Date | Particulars | JF | Amount | Date | Particulars | JF | Amount |
| Oct. 03 | Owner’s Equity | 75,000 | Oct. 06 | Purchases | 15,000 | ||
| Oct. 05 | Sales | 25,000 | Oct. 09 | Equipment | 35,000 | ||
| Oct. 30 | Accounts Payable | 25,000 | |||||
| Balance c/d | 25,000 | ||||||
| Total | 100,000 | Total | 100,000 | ||||
| Nov. 01 | 25,000 |
As you can see in the above example, the General Ledger shows a more detailed transaction list which includes the dates of the transactions as well as the particulars (description).
The General Ledger also shows the amount of each line item as well as a grand total in the Cash Account.
CDS Ltd.
Owner’s Equity Account
| Date | Particulars | JF | Amount | Date | Particulars | JF | Amount |
| Oct. 03 | Owner’s Equity | 25,000 | Oct. 03 | Cash | 75,000 | ||
| Oct. 03 | Furniture | 25,000 | |||||
| balance c/d | 100,000 | ||||||
| Total | 100,000 | Total | 100,000 | ||||
| Nov.01 | balance b/d | 100,000 |
Example of Trial Balance
The following information is provided by CDS Ltd to be used as an example of a Trial Balance.
| Particulars | Amount |
| Owner’s Equity | 75,000 |
| Sales | 25,000 |
| Purchases | 15,000 |
| Equipment | 35,000 |
| Accounts Payable | 25,000 |
| Furniture | 25,000 |
The next step is to categorize the account into their normal balances.
| S No. | Head of Account | Amount (Dr.) | Amount (Cr.) |
| 1 | Owner’s Equity | 75,000 | |
| 2 | Sales | 25,000 | |
| 3 | Purchases | 15,000 | |
| 4 | Equipment | 35,000 | |
| 5 | Accounts Payable | 25,000 | |
| 6 | Furniture | 25,000 | |
| Total | 100,000 | 100,000 | |
As shown above, the Trial Balance pulls information from the General Ledger to show the debits and credits for the transactions made.
If the grand total in the Trial Balance is not equal for both the Debits and the Credits, something is missing or not entered correctly in the General Ledger.
These two types of reports work together when reconciling and preparing financials.
The Flow Chart below contains a step-by-step representation of the company’s financial transactions.
| Transaction Identification |
| Preparation of voucher or evidence transaction |
| Recording of Journal Entry |
| Preparation of General Ledger |
| Balancing the Ledger |
| Preparation of Trial Balance |
| Preparation of various Financial Statements |
Key Differences between Trial Balance and General Ledger
- Amount and nature of information: general ledger contains all of the financial transactions of an organization. In contrast, the trial balance only reports the ending balances of accounts derived from the general ledger.
- Level of summary: general ledger may contain as many as 100 pages or more depending on the volume and complexity of the company’s operation. The trial balance may have only a few pages.
- Usage: General ledger provides a huge role when an accountant examines the company’s book of accounts. The trial balance is used for checking the total balances of Debit and Credit Accounts. For auditors to do their job efficiently, they already have the final amounts of all accounts in the trial balance, and to confirm the relevance and accuracy of the accounts and amounts, they will do the tracing of details to the general ledger.
- Account classification: the accounts in the general ledger are recorded as per classifications. While in the trial balance, there is no classifying of accounts. They only summarize all the accounts on the Debit and Credit side.
- Time Period: the timing of recording in the general ledger may be done at any period provided it is within the accounting period. In contrast, the trial balance is generally prepared on the last day of the accounting period.
- For investor use: Trial balance has a valuable contribution in terms of investment-related decision-making. While the General ledger cannot provides details that would help in the investor’s decision-making process.
General Ledger and Trial Balance have different functions, but both partake an important role in accounting recording, monitoring, and the preparation of the financial statement.
Conclusion
It is best to know the function of the trial balance and the general ledger because both are important in the company’s financial transaction recording and reporting.
The Trial balance is also considered a vital ingredient to keep the business afloat, economically and financially.
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