What Is an Account Balance?
Definition – Account balance is the total amount of money in an account, including short-term and long-term balances. It simply means the amount of money currently owed to you by another bank or other financial institution.
Understanding an Account Balance
An account balance is simply the total value of all financial assets and liabilities you have in one financial account.
Account balance shows how much money is in the account. This number will change from month to month and year to year because different types of accounts have different rules and regulations affecting how much money can be withdrawn at any given time without having to pay taxes on it and interest charges on any balance that accrues.
Usually, if an employer pays you salary or tips on time every week, there will not be any outstanding balance on your report for reporting purposes.
Account balances provide clear insight into how your finances are working. With an account balance, you can see how much money your account has available in it at any given time, how much money you spend, and how much money you earn.
Understanding your available cash allows you to plan your spending and save for things you really need.
Account balance is a key indicator of financial health. It is generated by financial statement analysis and gives investors and bond traders a good idea of what the borrower can afford in future payments.
A positive balance usually indicates a borrower has enough resources to meet his regular payments; conversely, a negative balance usually indicates that there may be problems with his finances beyond his control.
A bill that is always due, such as your water bill, can be viewed together within an account balance. Your account balance often settles how much money you make in your checking or savings account.
Examples of Account Balances
There are two types of Account balances:
Credit cards and checking accounts
1. Checking Accounts
Checking accounts, sums are limited, and thus transactions can be small. For example, let’s say that instead of writing a check for $2,000, you wired $500 directly to your account (this is legal even if you never cash the check).
Your bank will report the direct deposit as $1,500 on your statement (even though it should have been a weekly or monthly deposit).
However, if you were to open a new checking account and remove the $500 from your previous account, the new account would show as having a balance of $1,250.
2. Credit cards
In Credit cards, you can use unlimited amounts of money, and transactions may be large. The way you calculate your credit card balance is often a more accurate way to look at it than the actual purchase or payment you’ve made.
For instance, if you bought something for $100 with your credit card but forgot to mention it on your payment statement, that would be a negative amount toward your credit line.
But if you actually paid $100 for the item, then the $10 you paid for it is a positive amount toward your account because you owed that money to someone at some point in the past. This phenomenon is called accounting for credit losses and gains.
Account Balance vs. Available Credit
The two terms are often related. Your available credit is the total amount of money available to you on credit at any time, while your account balance is the total amount outstanding on your account at that time. There are some key differences though. Available credit limits are usually fixed, while account balances can be increased or decreased at any given time.
When you have available credit, it means there is money available on your account to pay for anything you want – including new purchases. An account balance is everything you owe on your card, even if you never use it for purchases.
Available credit is further broken down into direct and assumable. That means anything from your paycheck that can be used immediately without inquiry (for example, unemployment benefits) to a credit card with a long-term limit that can be used once but requires daily payments.