What is a balance sheet? Check it out.

You have certainly come across this term more than once in your bank statement or in some financial statements. The term sounds familiar, doesn’t it? According to the survey, as many as 60% of people admit that they have misinterpreted their account balance. What is the accounting balance? This topic is worth learning about to avoid surprises caused by numbers.

What is the accounting balance?

The accounting balance shows the amount present in your bank account. It includes booked transactions and transactions pending finalisation by the bank. Thus, it shows us exactly the available funds we have – it is the current amount indicated in our bank account.

Example Let us assume you have PLN 1,000 in your account but have made purchases for a total amount of PLN 500 which has not been booked yet, thus your balance will still be PLN 1,000.

Why should we explore the concept of balance?

In our experience, we have observed that many customers confuse the balance with actually available money. Analysing their cases, we could determine that up to 15% of the transactions visible in the balance are operations which are not yet available for withdrawal at any given time. That is why we always recommend checking not only the account balance, but also the actual funds available in the account – a simple rule which can protect you from an unplanned overdraft.

How do I check my bank account balance?

You can check it in several ways, there are several options you can choose from:

use your bank’s mobile app – your current balance is displayed after logging in
log in to your online banking, find the accounts field and then go to the balance details section
contact an adviser via the bank helpline

The choice depends on your own preferences – any of the above options will give you quick and clear access to details of your current bank account balance. The quickest way, however, would certainly be to use the mobile app, which provides all the required information at the touch of your finger.

What is account balance and what are available funds?

The main difference between the two is that balance does not take into account all instructed transactions at the given point in time, as they have not yet been booked by the bank.

Available funds (available balance) is the exact amount of money you can spend at any given time. These, in turn, already include operations you have already made.

Debit balance, credit balance and zero balance – what do they mean?

We distinguish several types of balances in accounting. First of all, we can distinguish between the opening balance and the closing balance:

The opening balance (Sp.) is related to the beginning of the given period, a time interval. We can refer to it as the “starting” balance of a particular period.
The closing balance (Sk.), on the other hand, works in reverse – it is the account balance at the end of the given time period, i.e. the amount appearing in the closing balance sheet.

We will present these concepts using the following examples:

Opening balance (Sp.)	Closing balance (Sk.)
Let us specify one month as our time period. If we start the month at PLN 5,000, this is our Sp. value.	We started the month with an amount of PLN 5,000 (Sp.), let us assume that during this period, we paid PLN 1,000 by card, withdrew PLN 1,500 from the account, and made one bank transfer of PLN 500. Once we add all the transactions together, our Sk. will be PLN 2,000.

In addition to the balances indicated above, we also distinguish between debit, credit and zero balances:

Debit balance indicates a situation where the sum of the entries on the “in” side is greater than on the “out” side – more money has been spent than has actually been received.
Credit balance works in reverse – the entries on the “in”side are higher than on the “out” side, i.e. more has been received than spent.
Zero balance on both sides – the “out” and “in” sides show an equal value.

What is a negative bank account balance and an overdraft limit?

As a general rule, the balance in the bank account is positive – this means that we can only use the available money. However, there are situations where the balance of the accounting account reaches a negative value, which in practice means debt to the bank.

An overdraft in the account usually occurs in two cases:

Fee charging by the bank
If there is no money in the account and the bank charges, for example, a monthly account or card fee, the balance will show a negative value.

Example
No funds are available in the account and a PLN 5 charge results in a balance of PLN -5. This debt is automatically covered the next time money is received.

Overdraft limit use
Overdraft is an additional option which enables the use of borrowed funds within a set limit.

Example
Let us assume you have PLN 3,000 and an active overdraft limit of PLN 2,000. In this situation, you can make a transaction up to a total amount of PLN 5,000. If more money than the funds in the account is spent, e.g. PLN 4,000, it means that PLN 1,000 of your limit has been used. The account balance in this situation will be PLN -1,000. The debt is repaid automatically when the account is credited.

It is important to remember that this situation is a form of debt and failure to repay it may incur additional interest. It is therefore a good idea to monitor your account balance and settle any overdraft as soon as possible.

Use the services of our office!

The account balance is one of the options which will help you control your company’s finances and the account situation. Constant monitoring of the company’s current situation is important. This sometimes puts a lot of pressure on entrepreneurs, which is why we are happy to help you control your company’s finances. With our accountancy firm EFEKTA, you have guaranteed professional service and ongoing support. We have been helping companies with professional bookkeeping for many years, as confirmed by numerous reviews from satisfied customers:

Expert advice

Can the accounting balance be withdrawn?

The balance indicates the total amount available in the account, but not the funds which can be withdrawn. This depends on whether the money shown in the balance is actually already available for disposal.

How is the balance of a bank account calculated?

This is the difference between the amounts spent and received – the debited amount (out) should be subtracted from the opening balance (in). The obtained result is our current balance.

Can the available funds be lower than the balance amount?

Yes – account balance and available funds are two separate things. The time at which a financial operation was executed does not always coincide with the moment when it is finally booked with the account.

What are the abbreviations “In” and “Out”?

The left-hand side of the account is a “Debit” (Dt) or “Owes” (In) and indicates the opening balance of the account. The right-hand side is either “Credit” (Ct) or “Has” (Out) and indicates a debit to this account.

What is the accounting balance? Summary

What is the accounting balance? Balance is a fundamental concept in finance management and it is a good idea to understand it well in order to avoid misunderstandings about available funds. Remember that keeping an eye on your balance allows you to better plan your expenditures and prevent unforeseen debits.

Key accounting balance information:

The balance shows the total amount in the account, but does not always indicate available funds.
The difference between the balance and the available funds is a result of the time at which a transaction was recorded.
A negative balance can be caused by bank charges or the use of an overdraft limit.
In active accounts, debit turnover is greater than or equal to credit turnover, so the account balance is always classified as debit. If the turnovers are equal to each other, the final balance is 0. The closing balance of the asset account is classified as debit, but for the purpose of the check balance, it is recorded on the credit side.
Balance can be checked using the mobile app, online banking or the bank’s helpline.
The abbreviations “In” and “Out” refer to the entries of the opening balance and amounts debited from the account.

Do you want to learn more?

Do you want to know how a balance check can help you control your finances? If you want to take a step forward in the subject of controlling your finances, we will be happy to help you with your company’s accounting or with tax advice.

Write to us at biuro@efekta.waw.pl or find out more on our website – EFEKTA accountancy firm.

Do you want to talk with us?

If you would like to give us a call, feel free to contact us:

+48 22 403 40 98
+48 604 501 507