The running balance is an accounting term used to describe the cumulative total of transactions in a financial account over a specified period of time. It represents the net amount of funds available in the account after each transaction is recorded, taking into account both credits and debits. The running balance is an essential tool in financial management, allowing individuals and businesses to monitor their financial activity and maintain accurate records.
Explanation:
In the realm of finance, the running balance serves as an ongoing record of the status of a financial account. It provides a snapshot of the account’s balance at any given point in time after each transaction has been processed. The running balance is typically updated with each transaction, ensuring that the account holder has access to the most up-to-date information regarding their funds.
To calculate the running balance, one must take into account both incoming and outgoing funds. Each credit or deposit made to the account increases the running balance, while each debit or withdrawal decreases it. By continuously adding the credits and subtracting the debits, the running balance provides a real-time overview of the account’s balance.
Usage:
The concept of a running balance is commonly employed in various financial settings, such as billing, accounting, invoicing, and bookkeeping. For example, in bookkeeping, the running balance can be used to track the daily transactions in a company’s general ledger or individual accounts. This ensures that all financial data is accurately recorded and reconciled.
In the context of personal finance, online banking platforms often display the running balance alongside transaction history, allowing individuals to track their expenses, income, and available funds. This allows users to have a clear understanding of their financial situation without the need to manually calculate their balance.
Furthermore, in the field of corporate finance, the running balance plays a crucial role in managing cash flow. Monitoring the running balance enables decision-makers to make informed choices about investments, budgeting, and planning for future expenses. It also helps in identifying and addressing any discrepancies or errors that may occur within the account.
Overall, the running balance serves as an invaluable tool for financial tracking and management. Its widespread use across various financial domains makes it an essential term to understand both for professionals in the finance industry and individuals managing their personal finances.
Note:
The running balance should not be confused with the term account balance, as the latter represents the final amount in an account after all transactions have been accounted for, while the running balance reflects the intermediate amount between transactions.
References:
– Brigham, E. F., & Houston, J. F. (2019). Fundamentals of Financial Management. Cengage Learning.
– Garrison, R. H., Chesley, S. L., & Carroll, P. A. (2019). Managerial Accounting. McGraw-Hill Education.
– Tyagi, S., Nirvana, N., & Kalra, G. (2020). Financial Accounting and Bookkeeping. Notion Press.
Disclaimer:
The information provided in this dictionary entry is for informational purposes only and should not be considered as financial advice. Users are encouraged to consult with a qualified financial professional for specific guidance related to their individual circumstances.
