Running Balance vs Available Balance

Running Balance and Available Balance are two terms commonly used in the field of finance, specifically in the areas of banking, accounting, and personal finance management. While these terms are related to each other, they have distinct meanings and implications. Understanding the difference between the two is essential for individuals and businesses to effectively manage their financial resources and make informed decisions.

Running Balance refers to the cumulative total of all transactions in an account over a specific period. It is a dynamic figure that continuously changes as new transactions are added or removed. The running balance reflects the net effect of all deposits, withdrawals, transfers, and fees associated with an account. Maintaining an accurate running balance is crucial for monitoring cash flow and keeping track of account activity.

On the other hand, Available Balance represents the amount of funds that can be accessed or used at a given time. It is the actual cash value available for withdrawal or use in making payments and transactions. The available balance takes into account factors such as pending transactions, holds, and any restrictions imposed by the financial institution. It is the actual available funds that users can rely on when planning their financial activities.

The distinction between running balance and available balance becomes particularly important when dealing with financial transactions that have not yet cleared or been fully processed. For example, when a check is deposited into a bank account, the running balance will increase immediately, but the available balance may not reflect the entire amount until the check has been fully cleared.

Furthermore, certain types of transactions, such as transferring funds between accounts or making purchases using a debit card, may result in temporary holds on the available balance. These holds are put in place to ensure that sufficient funds are available to cover the transaction when it is processed. Once the transaction is completed, the hold is released, and the available balance is adjusted accordingly.

It is worth noting that while the running balance provides a comprehensive view of all account activity, it does not indicate the true amount of funds that can be used. To determine the available balance, it is necessary to consider any pending transactions, holds, and restrictions imposed by the financial institution.

For effective financial management, individuals and businesses must regularly reconcile the running balance with the available balance to ensure accuracy and avoid any potential overdrafts or financial inconsistencies. This practice involves comparing the recorded transactions with the financial institution’s statement to identify any discrepancies and take appropriate action.

In conclusion, Running Balance and Available Balance are two important concepts in the realm of finance. The running balance represents the cumulative total of all transactions in an account, while the available balance reflects the amount of funds that can be accessed at a given time. Understanding the difference between these two terms is vital for managing finances effectively, making informed decisions, and maintaining financial stability.

This glossary is made for freelancers and owners of small businesses. If you are looking for exact definitions you can find them in accounting textbooks.

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