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A new accountant does not know which balances restart at zero on 1 April and which carry forward, so opening balances drift from the audited closing figures.
Close every nominal account to profit and loss, transfer the net profit to capital or reserves, and carry real and personal account balances forward unchanged.
A 31 March trial balance, the final audited adjustments, the profit and loss account and the capital or reserves ledger.
A new-year trial balance where income and expense accounts are nil and every asset, liability and capital balance equals its 31 March closing figure.
Closing entries are the journal entries passed at the end of the financial year that move every income and expense balance into the profit and loss account, and then move the resulting profit or loss to capital or reserves. After that, income and expense accounts start the new year at zero. Assets, liabilities and capital are not closed: their 31 March balances become the opening balances on 1 April.
What happens to each type of account on 31 March?
Indian textbooks group accounts into three types. Each one is treated differently at year end.
| Account type | Examples | What happens on 31 March | Opening balance on 1 April |
|---|---|---|---|
| Nominal | Sales, salaries, rent, interest, bank charges | Closed to profit and loss | Nil |
| Real | Bank, cash, stock, machinery, furniture | Not closed; balanced off | Same as 31 March closing |
| Personal | Debtors, creditors, capital, loans | Not closed (capital receives the profit) | Same as 31 March closing, capital after profit |
The rule to remember: if an account measures performance for one year, it is closed. If it measures what you own or owe on a date, it carries forward.
A worked example
A proprietorship has sales of ₹48,00,000 and total expenses of ₹41,50,000 for the year ending 31 March.
- Close sales: debit Sales ₹48,00,000, credit Profit and Loss ₹48,00,000.
- Close expenses: debit Profit and Loss ₹41,50,000, credit each expense account (total ₹41,50,000).
- Profit and loss now shows a credit balance of ₹48,00,000 minus ₹41,50,000, which is ₹6,50,000 net profit.
- Transfer profit: debit Profit and Loss ₹6,50,000, credit Capital ₹6,50,000.
If opening capital was ₹10,00,000 and the owner took drawings of ₹1,20,000, closing capital is ₹10,00,000 plus ₹6,50,000 minus ₹1,20,000, which is ₹15,30,000. That figure is the capital opening balance on 1 April.
Meanwhile a debtor who owed ₹2,16,000 on 31 March still owes ₹2,16,000 on 1 April. Nothing is closed there, and the bank balance of, say, ₹3,85,000 also carries forward unchanged.
Does accounting software pass closing entries automatically, and what should you still check?
In Tally Prime and Zoho Books you do not usually type closing entries by hand. The software computes the profit and loss for the period and shows the new year with nominal accounts at zero and the profit added to capital or retained earnings. Companies keep their books under Section 128 of the Companies Act 2013, which also requires the books to be preserved for eight years, so the old year must stay intact.
What the software cannot do is know whether the old year was finished. Check these before you trust the new-year figures:
- All audit adjustments (provisions, depreciation, prepaid and outstanding expenses) were posted in the old year.
- Nobody posted or edited an entry dated before 1 April after the auditor signed off.
- The closing stock value used in the accounts matches the stock statement.
- The old year is locked or restricted in the software so later edits are blocked.
Why must the opening balance on 1 April equal the closing balance on 31 March, and how do you prove it?
Because they describe the same moment. Midnight on 31 March is the start of 1 April, so a bank balance, a creditor balance or capital cannot change between the two dates. If it does, something was edited in one year and not reflected in the other.
To prove the match:
- Print the final trial balance as at 31 March from the audited accounts.
- Print the opening trial balance as at 1 April in the new year.
- Compare every real and personal account line by line. The difference should be nil.
- Check that capital or reserves on 1 April equals the old balance plus the year’s profit, less drawings or dividends.
- Agree the bank opening balance to the bank statement balance on 31 March, after allowing for reconciling items in the year-end bank reconciliation.
Keep this comparison in the audit file. Statutory auditors under SA 510 (opening balances in initial audit engagements) look at exactly this point when they take on a new client.
What to read next
Opening balances are the first check every year. Once you know how balances carry forward, read opening balance reconciliation in India for how to trace a mismatch, and the year-end reconciliation guide for the full close checklist. If you reconcile many ledgers each month, see how account reconciliation software in India is evaluated.
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →