What is necessary for a trial balance to be considered correct?

For a trial balance to be considered correct, total debits must equal total credits. This is fundamental to the double-entry accounting system, where every financial transaction affects at least two accounts—one account is debited and another is credited. Therefore, if the accounting entries are balanced correctly, the sum of debits should always match the sum of credits, which serves as a key check on the accuracy of the bookkeeping.

If the trial balance reflects an equality between total debits and credits, it indicates that the accounts are mathematically balanced, suggesting that there are no arithmetic errors in the ledger entries. While it doesn’t guarantee that all transactions have been recorded correctly or that the accounts reflect the true financial position of a business, it is a crucial step in the accounting cycle.

Other options relate to different aspects of financial health or accounting principles but do not impact the correctness of the trial balance directly. For instance, equity does not have to exceed liabilities for a trial balance to be correct, as various financial situations can exist. Additionally, all accounts do not need to show a profit nor does cash flow need to be positive for the debits and credits to balance fundamentally.