Definition

Account Balance

  • Updated on

What is an account balance?

Account Balance can be defined as the money present in the financial repository at any given accounting period. It’s represented as a net balance after factoring in all debits and credits added to the last month carried forward balance. 

Source: © Eamesbot | Megapixl.com

Summary
  • The account balance indicates the amount of money in a bank account in debit or credit.
  • On paper statements and through online resources, financial institutions have the present value of account balances.
  • Account balances in volatile asset investments can fluctuate dramatically during the day.

Frequently Asked Questions (FAQ’s)

What does the word "account balance" imply?

A current account balance implies available funds at a specific time in a specific financial account, such as savings, checking, or investment accounts.

Account balance highlights total assets minus total liabilities. It may also be called net worth as it subtracts any debt or obligation from positive cash flows.

Account balance may also reflect as account owned or net debt. Amount owned is commonly represented in recurring accounts such as mortgage or utility bills etc. Whereas net debt is expressed in accounts as negative cash balances such as an overdraft.

The account balance is equal to total assets minus total liabilities. Since it subtracts all liabilities or debts from total amounts, this is often referred to as total wealth or net worth.

A person's account balance will represent the current amount of funds or account value for a particular account at a financial institution, such as a brokerage account or checking account. As security rates rise and fall in the market for other volatile assets or investments, the account balance may begin to fluctuate over time.

The total amount owed to a third-party lender, such as a credit issuer, mortgage banker, or utility company, is also referred to as the account balance.

On the other hand, the account balance in banking refers to the amount of money left in the checking or savings account.

As a result, after balancing the ledger accounts, the account balance is the net amount remaining. When there are pending transactions or unprocessed checks, an account balance cannot accurately reflect the available funds at any given time.

What is the significance of account balances?

The difference between the debits and credits posted to the account at the end of each accounting period, which becomes the starting balance for the next accounting year, is called the opening account balance for the current accounting period. From one accounting cycle to the next, not all accounts hold balances. At the end of an accounting period, temporary accounts are transferred to permanent accounts that carry forward balances to another year.

All accounts can either have a debit balance or credit balance. Asset accounts include debit balances, whereas liability and equity accounts include credit balances.

Source: © Narajana | Megapixl.com

What are the various types of account balances?

Credit Cards

Credit cards can have negative or outstanding account balances, which vary from month to month based on card transactions. A credit card balance can affect a person's credit score in general.

Several factors can contribute to a credit card account balance, including payments, sales, and balance transfers.

Checking Account

A checking account, which allows withdrawals and deposits, is another form of the account balance. This form of account is unique as it will enable for unrestricted deposits and withdrawals.

What are the distinctions between account balance and available credit?

The available credit can be defined as an unused portion of the credit currently available in a credit account. Available credit, as well as the account balance, has a significant effect on the credit score.

Maintaining a low credit balance means that credit utilisation is also low. If more credit than available credit limit is tried to be used, the transaction will be denied unless the owner has a special agreement in place for over-the-limit transactions. Furthermore, overusing usable credit puts you at risk of incurring an over-the-limit payment fee.

Credit card account balances represent the total amount owed to the credit account at the beginning of a statement cycle. Furthermore, any debt rolled over from previous months is treated as a credit account balance, and the rollover sum may include interest charges.

Some bank accounts do not represent deposits directly after a transaction, and it may take several business days before the actual account balance is reflected. Usually, in such cases, banks show the current available balance alongside the pending deposit.

Some account balance examples are as follows.

When using a credit card, an individual may have made transactions totalling $300, $100, $50, and $20, as well as returning a $50 item. The account balance contains not only the $470 in purchases but also the $50 returned item. The account balance is $420, or $470 minus $50, resulting from the debits and credits.

Suppose a person's starting balance in a checking account is $1000, and he or she receives a check for $2000 and writes a check or schedules an automatic payment for $500. In that case, the account balance will display $3,000 right away, depending on the banking institution. The actual account balance, however, is $2500.