Cash flow and Trial balance are two different yet connected terms that are familiar to everyone involved in the business. Discussions have been going around for a very long time to decide which is better or which one to trust. Take another look at both before moving on to conclusions based on the knowledge you already have.
Cash Flow
The simplest definition of cash flow is the movement of money into and out of business. A cash flow statement is a financial report that notes the sources of income and expense details of the company in each period. The income is categorized as Cash inflow while the expenses are generally called outflows. It is as important as any other financial statement.
- Sales revenue
- Interests from investments
- Other investments
- Royalties
- Licensing agreements and more.
A cash flow statement provides a detailed image of the company’s performance for the period. It also assists in;
- Study of liquidity and solvency
- Position of cash
- Allocation of cash
- Short and long-term planning
- Efficient cash management
- Comparative study
- Analyzing cash flows from different activities separately.
The cashflow report also consists of operating, Financing, and investing activities. Inflow and outflow are the subparts of operating activities.
Trial Balance
Trial balance is a report that shows the balances of each general ledger account in the company. Also, it is to be noted that a trial balance is not a proper financial statement, but it aids as the base in preparing the same. The accounts shown on a trial balance include:
- Assets
- Liabilities
- Equity
- Revenues
- Expenses
- Gains
- Losses
A trial balance is different from a general ledger. While the general ledger reflects all the transactions by the account, the trial balance shows only the account totals. Separate transactions are not mentioned in a trial balance. It is prepared only for internal use only.
Uses of Trial Balance
- Trial balance statement assists in identifying the balance of debit and credit entries in the general ledger.
- Any possible errors can be identified and rectified.
- Additionally, it also helps in making the necessary adjusting entries to the general ledger.
- Trial balance is used as a basis for preparing financial statements.
Cash Flow or Trial Balance?
The Cash Flow statement is a record of the inflow and outflow of cash in the company. It aids in understanding and analyzing financial performance, which in turn assists in financial planning and influences making the right decisions. The trial balance is an overall record, and it is not even a proper financial statement.
