Definition of account balance
What is an account balance?
An account balance is the amount of money present in a financial repository, such as a savings account or checking account, at any given time. The account balance is always the net amount after taking into account all debits and credits. An account balance less than zero represents net debt, for example when there is an overdraft on a checking account. For financial accounts that have recurring bills, like a utility bill or mortgage, an account balance may also reflect an amount owed.
Key points to remember
- An account balance represents the available funds, or the current account value, of a particular financial account, such as a checking, savings, or investment account.
- Financial institutions make the current value of account balances available on paper statements as well as through online resources.
- The account balances of investments holding risky assets can vary widely throughout the day.
- A negative account balance indicates net debt.
Understanding an account balance
Your account balance shows your total assets less your total liabilities. Sometimes this can be referred to as your net worth or total wealth as it subtracts all debts or obligations from the positive sums. For specific accounts at a financial institution, such as a checking account or brokerage account, your account balance will reflect the current amount of funds or the value of that account. For investments or other risky assets, your account balance will tend to change over time as the prices of securities rise and fall in the market.
Many other financial accounts also have an account balance. Everything from a utility bill to a mortgage account should show you the account balance. For financial accounts that have recurring bills, like a water bill, your account balance usually shows the amount owed. An account balance can also refer to the total amount of money you owe to a third party, such as a credit card company, utility company, mortgage banker, or other type of lender or of creditor.
In banking, the account balance is the amount of money you have in your checking or savings account. Your account balance is the net amount you have available after all deposits and credits have been balanced with any charges or debits. Sometimes your account balance may not reflect the most accurate representation of your available funds, due to pending transactions or checks that have not been processed.
Your stated bank account balance may be misleading if, for example, a check you wrote has not yet been cleared by the bank, or if a pending transaction has not yet been completed.
Examples of account balances
In the case of a credit card, you might have made various purchases of $ 100, $ 50, and $ 25 and returned another item costing $ 10. The account balance includes purchases made, which total $ 175, as well as the item returned for $ 10. The net amount of debits and credits is $ 165, or $ 175 less $ 10, and that amount is your account balance.
In the case of a checking account, if your starting balance is $ 500 and you received a check for $ 1,500 and you also issued a check or scheduled an automatic payment of $ 750, your balance account can then show $ 2,000 immediately, depending on the banking institution. However, the actual account balance is $ 1,250. It is important to keep track of account balances by recording each credit and debit and then reconciling your calculated balance with the bank statement balance each month.
Account balance versus available credit
For credit cards, account balances are the total amount of debt owed at the start of the statement date. Your credit card account balance also includes any debt carried over from previous months, which may have accrued interest charges. Available Credit is the term used next to Account Balance to indicate how much of the line of credit you have left to spend.
For some bank accounts, deposits may not be cleared in whole or in part immediately, which may take up to a few business days to appear in your account. In such situations, the bank will usually tell you the current available balance as well as the unavailable amount awaiting clearing.