What Is an Account Balance? (Definition and Examples)
Updated June 24, 2022
What is an account balance?
An account balance is the total amount of money available in a financial account after all the debits and credits have been calculated. It can also refer to the total amount of money that a person or organization is due to pay to a third party, such as a service provider. An overall account balance is also referred to as total wealth or net worth.You can get an account balance on any of your accounts by contacting your bank in person, by email, through their online app or by phone. You can also elect to set up automated text or email alerts notifying you of account balance changes.Related: SMART Goals: Definition and ExamplesTypes of account balances
There are many different financial accounts of all kinds that require an account balance. Below are the main examples of account balances:Bank account balance
A bank account balance is the total amount of money that a person or organization has in their savings or checking account after all funds from deposits and credits have been added and all charges and debts have been subtracted. There are situations when the bank account balance is not a completely accurate representation of the true account balance, as certain pending debts are yet to be calculated.Loan account balance
This kind of balance includes any type of loan, such as for a car or for education. For instance, a mortgage account is another type of account balance, as the borrower gets a large sum of money to buy a property and typically spends many years making payments against the loan.Related: What Is APR? Understanding Loans, Credit Cards and InterestCredit card account balance
Credit card account balances show the total amount owed by the user, including any accumulated debt from previous months and interest charges that may have accrued. The amount of money the credit card owner can spend at any given time after all the debt is factored in is called “available credit.”What are the main uses of an account balance?
An account balance serves the following main purposes:- An account balance provides updated and easy-to-access information regarding how much money you currently hold.
- An account balance provides a simple way of keeping track of all transactions and managing the money coming in and going out.
- An account balance is an effective way of keeping a detailed income and expenditure history in case a past incoming or outgoing payment needs to be proven.
How is the account balance different from available credit?
The money you can spend with your credit card is limited by the bank, with the limit effectively being the highest possible account balance you can have on that credit card. As long as purchases are worth less than your credit limit, you can still spend money from your available credit. Therefore, your available credit is the amount of money you can use for your purchases.While your credit card account balance represents the difference between the money you spent and the money you put in, in the form of credit card payments, your available credit is the maximum amount that you can spend at any given time. You can calculate your available credit by subtracting your current account balance from your total credit limit and factoring in any outstanding charges that are not yet visible on your balance.Your available credit is will drop as more charges are applied against your account. Some charges can also be temporary, affecting your available credit for a limited amount of time. An example of that would be a hotel reservation that holds a fixed amount of money on your credit card. When the room is paid from another source, the initial sum that was reserved on your credit card is returned, therefore increasing your available credit.Related: Core Values: Overview and ExamplesDo you need help with your resume?
Examples of account balances
Here are two examples of account balances:Example 1: A bank account holder starts with an account balance of $5,500. They made a payment for $2,000 that is yet to be processed by the bank of the party receiving the money. Then they received a payment of $3,000. Therefore, although their account balance after receiving the payment is $5,500 + $3,000 = $8,500, the amount of money that is available for withdrawal is actually $5,500 + $3,000 - $2,000 = $6,500, because their bank has already blocked the money they owe in the form of a pending transaction.Example 2: A credit cardholder has a credit limit of $1,000. They make purchases worth $100, $250 and $50, but also use cash to pay off a $150 hotel reservation that they made using the credit card, and the money is returned to their credit balance. Therefore, their account balance will show an accumulated debt of $100 + $250 + $50 - $150 = $250. The available credit can then be calculated by subtracting the $250 net spending from the total $1000 initial available credit, resulting in a current available credit of $750.Related: 5 Types of Accounts in Accounting (With Examples)
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