Accounting terminology: what is a balance?

In accounting, one of the most important and frequently used terms is the "balance". Its importance is well known to specialists in this field. To people who are far from accounting, the word is familiar very superficially and, as a rule, is associated with them with a certain difference. In a general sense, this is the difference that arises between the received and expended funds for a certain period. However, for an economist and an accountant, the concept is much deeper and wider. What is the balance and what does it have to account for financial flows in the organization? This question will be answered by the submitted article.

Origin and meaning of the term

The very word came to our speech from the Italian language and literally translates as "balance", "payback" or "calculation." About that, that such balance in accounts department, have learned in the nineteenth century. It was then that the word began to be used as the term denoting the balance of funds in the accounting accounts. His meaning has not changed to this day. Although it has become more widely used in speech. If previously it was used only in one case - to denote the difference between debit and credit accounts, then from the beginning of the twentieth century, its application went beyond accounting. Today the word is used in a figurative sense, is present in the terminology of foreign trade relations.

Balance in Accounting

Despite the wide use of the term in modern speech, its main purpose remains unchanged. It is used by accountants in keeping records at the enterprise and reflects the difference in the amounts recorded on the debit and credit of the accounts. For the disclosure of the concept, it is important to understand what a debit-credit is.

The balance can be formed on both sides of the account - left and right. The first is a debit and shows the arrival if the account is active, and the expense, if it is passive. The second side - credit - has the opposite meaning. On each account between them a difference is formed, called the "balance". If the debit turns out to be more than a loan, then it is considered debit and is shown in the active part of the balance sheet. If less - credit (reflected in the liability). Some accounts have one and the other at the same time. In addition, the balance on the account can turn out to be zero, then they say that it is closed. In addition to debit and credit, there are other types of balances. Let's consider them further.

Types of balances in accounting

In accounting practice there are several types of balances, namely:

• Debit and credit;
• Active and passive;
• Initial and final.

The first two species have already been considered. As for the surplus, it arises when the funds received by the organization exceed the costs incurred by the organization. In the opposite situation, when revenues are less than actual costs, a passive balance is formed. Despite the fact that the difference can be both positive and negative, it is always written with a plus sign. This is due to the fact that when accounting for household funds, the principle of double entry is used: on the one hand, those operations that lead to the growth of material assets are taken into account, on the other hand, to a reduction.

Now let's look at what is the opening balance and the final balance. The fact is that the analysis of transactions in accounting is carried out for a certain period (for example, for a month). At the end of the account, the account is closed and the debit and credit indicators are considered, the difference of which is transferred to the next month. The balance at the beginning of the period, calculated on the basis of previous transactions, is called the opening balance. It is easy to guess what is the final balance. This is the balance of the account at the end of the period. It is defined as the sum of the incoming balance and turnover for the period under review.

Example calculation

In order to better understand what a balance is, let's consider a simple example of its calculation. Take the "Materials" tab. At the beginning of the month there were 1000 meters of cloth on it (the initial balance). During the settlement period, another 200 meters were purchased and 600 sold. At the end of the month, the total of operations on this account was summed up. The final balance was: 1000 + 200 - 600 = 600 meters. Since this account is active, the debit exceeds the credit, it will be debit.

Suppose that in the same month you had a debt for a cloth in the amount of 5 thousand rubles. For account we use passive account "Settlements with suppliers". He gave you 4 thousand and 2 thousand received from him on the waybill. At the end of the month the accountant made the balance calculation: 5 - 4 + 2 = 3 thousand rubles. Since the account is passive, the balance will be credit.

Foreign trade relations

In this sector of the economy, the Italian word for the difference is also used. What is the balance in international trade? Here, at least two of its varieties are distinguished: the balance of the trade balance and the balance of payments. Let us examine what these concepts mean.

Trade balance

The basis of foreign trade is export and import. The difference between these values over a certain period is called the trade balance. It can be both positive (when exports exceed imports, that is, the country sells more than it buys), and negative (when there is a reverse trend). Worldwide, the situation of excess imports over exports (negative trade balance) is seen as negative. This is explained simply: as a result of this policy, the country is flooded with foreign goods, which causes the domestic producer to suffer, and the money "flows" abroad. In the recommendations of the International Monetary Fund, there are even special indications of the need to maintain a positive trade balance, and this provision is often one of the mandatory conditions for issuing loans to states. However, in America, for example, there is a reverse situation. Over the past few years, imports of goods dominate in this country, and the negative balance reaches tens of billions of dollars. In this situation, the living conditions of the US population can be envied by the inhabitants of many countries that are only striving for such well-being.

Balance of payments

In the relations between states there are always monetary calculations. The difference in the receipts from abroad and payments to other countries is called the balance of payments. It is positive if more than goes, and negative - if the situation is the opposite. In the latter case, the country's foreign exchange reserves decrease (if payments are made in currency, for example, euros or dollars). To fill the gap, there is a need to sell domestic goods for currency. You can also replenish your account due to stabilization loans.

Balance in payment receipts of housing and public utilities

Since the beginning of 2012, receipts have become more detailed. On the one hand, this is a positive trend, but on the other - citizens have a lot of questions about its content. For example, many are interested in what is the balance in the receipt. This graph shows the balance of the personal account at the beginning of the current month. If the value is positive, then there is an overpayment for utility services, if negative, then there is a debt. In this case, it is considered only after the 10th day of the month following the settlement (it is during this time that tenants are obliged to pay a fee for utilities). Thus, ordinary citizens are faced with the concept of "balances" in everyday life. In this case, it is considered as an incoming balance on the personal account of their living quarters.

Conclusion

In the article, we examined in detail the question of what is a balance, what it is and in what areas it is used. This concept is most widely used in accounting when analyzing operations on the receipt and expenditure of funds in an organization. However, it is also applied in other areas, including foreign trade and even housing and communal services.