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TRIAL BALANCE vs BALANCE SHEET - YouTube
Channel: Accounting Stuff
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in this short video you will learn the
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difference between the trial balance and
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the balance sheet in accounting pay
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their I'm James and welcome back to
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accounting stuff recently I made a video
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covering the balance sheet well I
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mentioned this the trial balance is not
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the same thing as the balance sheet if
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you'd like to see me make a video
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explaining the differences let me know
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in the comments and you guys got back to
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me so thank you and here we are the
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trial balance versus the balance sheet
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both of these reports have balance in
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their names which makes them easy to get
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mixed up more on that soon along with a
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knowledge bomb that I like to share with
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you but first I want to explain how the
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trial balance and the balance sheet are
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actually very different from or not one
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another but also very similar at the
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same time hmm cryptic the trial balance
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is an internal accounting report showing
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the closing balances of all general
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ledger accounts at a single point in
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time it looks like this we have three
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columns accounts debits and credits the
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accounts column contains a complete list
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of all of the general ledger accounts in
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a business and to the right of it we
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have the total debits or total credits
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in each account the trial balance shows
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us the closing balances of all of these
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accounts at a single point in time so we
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need to make that clear in the title I'm
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going to use Old Faithful the window
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cleaning example that we've covered a
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few times before so we'll run through
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our trial balance to September 30th and
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here are our closing numbers at the
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bottom of the trial balance we normally
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take the totals for both the debit and
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credit columns this is a check to ensure
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that our books are in balance because in
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double-entry accounting debits and
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credits must match each other exactly at
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all times back when accounting was done
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manually the trial balance was used to
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check that total debits were equal to
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total credits across all accounts
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accountants would literally spend hours
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or even days trying to
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where they messed up if these totals
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didn't match each other exactly
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thankfully nowadays this check is done
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for us automatically when we use
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accounting software but to us
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accountants the trial balance is still
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an internal document that we use to
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check for errors there are whole bunch
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ways that those areas can still sneak
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their way into here if you'd like to
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learn more about that then check out my
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trial balance video which you can find
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up here another way that we accountants
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use the trial balance is to help us put
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together financial statements you can
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think of financial statements as formal
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reports that we used to summarize a
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business's financial performance
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position and cash flow the three main
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types of financial statement are the
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income statement the balance sheet and
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the cash flow statement the balance
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sheet is a snapshot of a business's
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assets liabilities and equity at a
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single point in time while this
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definition might sound similar to the
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trial balance it's actually quite
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different a balance sheet looks like
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this we have all of our window cleaning
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businesses assets liabilities and equity
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laid out for us separately on one page
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at the bottom we have our total assets
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and our total liabilities plus equity
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after all with double entry accounting
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so the balance sheet has to balance we
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accountants prepare financial statements
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like the balance sheet to give our
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businesses key stakeholders an idea of
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its financial health who our
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stakeholders are existing and potential
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investors lenders and creditors external
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parties that want to know about our
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financial position on the other hand the
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trial balance is used internally by us
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accountants to check the integrity of
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our financial data we run the trial
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balance as often as we need to get the
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job done
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whereas typically we only put together a
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balance sheet where we need to at the
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end of each financial year that's when
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we have to report our results to the
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external parties that I mentioned a
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moment ago so you have two very
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different reports with two very
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different purposes but here's where
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things get intro
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thing I mentioned earlier that we
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accountants used the child balance to
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help us prepare financial statements and
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the balance sheet is a financial
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statement one of the most important ones
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so when it comes to reporting time we
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begin by running a trial balance this is
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our starting point the foundation that
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we use to build the balance sheet we can
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see that here in our window cleaning
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business cash supplies and equipment are
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all types of assets that we report in
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the assets section of our balance sheet
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accounts payable and long term loans are
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both liabilities which we report in the
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liabilities section and owner's equity
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yes you guessed it is a type of equity
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which goes here in the equity section of
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the balance sheet
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finally revenue cost of sales and
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laundry costs are a bit more complicated
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not too complicated just a bit because
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they get reported in two different
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financial statements their income
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statement which we use to track our
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profit and then again in the balance
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sheet in the equity section because
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retained earnings and make up our
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profits held for future use you might be
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wondering why these totals are different
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that's because we net it together some
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of our debits and credits in the income
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statement before we take the profit
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through to the balance sheet so the
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trial balance and the balance sheet are
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two different reports but they have a
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strong link that binds them together we
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use the trial balance to create the
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balance sheet now that last bit where I
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mentioned retained earnings and equity
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can be a bit confusing if you'd like to
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learn more about it then I recommend you
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check out my equity video which you can
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find up here give this video a big old
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like if you found it useful
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why not doesn't hurt I released new
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accounting tutorials each week on this
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channel so hit subscribe to avoid
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missing out on those and as always if
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you've got any questions you can reach
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me in the comment or message me on
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Instagram
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counting stuff
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you
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