Accounting glossary
Trial balance
A trial balance lists every ledger in your books with its debit or credit balance on a date. Since each entry has equal debits and credits, the two totals must agree, which makes it the first check before your P&L and balance sheet are prepared.
Why it matters to your business
The trial balance is where your accountant starts every month-end and year-end. If it agrees and each balance looks sensible, you can rely on the profit and loss account and balance sheet built from it. If a balance looks wrong, such as a cash ledger with a credit balance or a customer who shows as owing you far too much, you find it here before it reaches your bank, your CA or the tax department.
Reading it once a month also gives you a quick view of the whole business on one page: what you have sold, what you have spent, what customers owe you and what you owe vendors.
How it works
Each ledger’s closing balance goes into either the debit column (assets and expenses) or the credit column (capital, liabilities and income). A simple trading business on 31-03-2026 might look like this:
| Ledger | Debit | Credit |
|---|---|---|
| Capital | ₹5,00,000 | |
| Bank loan | ₹1,00,000 | |
| Furniture | ₹1,20,000 | |
| Bank | ₹2,40,000 | |
| Sundry debtors (customers) | ₹3,10,000 | |
| Sundry creditors (vendors) | ₹1,80,000 | |
| Sales | ₹12,00,000 | |
| Purchases | ₹9,50,000 | |
| Rent | ₹1,20,000 | |
| Salaries | ₹2,40,000 | |
| Total | ₹19,80,000 | ₹19,80,000 |
The totals agree, so every entry was posted with equal debits and credits. Your accountant then adds closing stock and year-end adjustments (depreciation, expenses due but unpaid) and prepares the final accounts.
Common mistakes
- Treating an agreeing total as proof. A purchase bill posted to rent, or a receipt credited to the wrong customer, still leaves the totals equal. Look at each balance, not only the total.
- Parking differences in suspense. A suspense ledger that never clears hides errors. Find the cause and correct the entry.
- Ignoring odd balances. A customer with a credit balance usually means an advance or an unadjusted credit note; a vendor with a debit balance usually means an advance or a bill not yet entered. Both deserve a look before you close the month.
- Wrong opening balances. When you move from one system to another, check that the opening trial balance matches the closing one from the old books, ledger by ledger.
Questions about Trial balance
What is the purpose of a trial balance?
It checks that total debits equal total credits in your books, and it gives your accountant one list of closing balances from which the profit and loss account and the balance sheet are drawn.
If the trial balance agrees, are my books correct?
Not necessarily. An entry left out altogether, an amount posted to the wrong ledger, or two errors that cancel each other all leave the totals equal. Reconciling your bank, customer and vendor balances catches most of these.
What is the difference between a trial balance and a balance sheet?
A trial balance is a working list of every ledger, including income and expenses. The balance sheet is a financial statement that shows only assets, liabilities and capital, after the profit or loss for the period has been worked out and added to capital.
Why does my trial balance show a difference?
In manual books, the usual causes are an entry posted on one side only or with different amounts on each side. In accounting software that enforces double entry, a difference usually comes from opening balances that were entered without their matching side.
Updated .