In accounting, one of the most important and frequently used terms is "balance". Its significance is well known to specialists in this field. To people far from accounting, the word is very superficial and, as a rule, is associated with a certain difference. In a general sense, this is the difference that arises between received and spent funds over a certain period. However, for an economist and accountant, the concept is much deeper and broader. What is the balance and what does it mean for accounting for financial flows in the organization? This article will answer this question.
The origin and meaning of the term
The word itself came into our speech from the Italian language and literally translates as "balance", "reckoning" or "calculation". About what is the balance in accounting, learned in the nineteenth century. It was then that the word began to be used as a term denoting the balance of funds in accounting accounts. Its significance has not changed to this day. Although it has gained wider use in speech. If earlier it was used only in one case - to indicate the difference between debit and credit of accounts, then since the beginning of the twentieth century its use has gone beyond accounting. Today the word is used in a figurative sense, is present in the terminology of foreign trade relations.
Accounting balance
Despite the widespread use of the term in modern speech, its main purpose remains unchanged. It is used by accountants in accounting at the enterprise and reflects the difference in the amounts recorded on the debit and credit of accounts. To disclose the concept, it is important to understand what a debit loan is.
Balance can be formed on both sides of the account - left and right. The first is a debit and shows the receipt if the account is active, and the expense if it is passive. The second side - credit - has the opposite meaning. On each account, a difference is formed between them, called a “balance”. If the debit is more credit, then it is considered debit and is shown in the active part of the balance. If less - credit (reflected in the liability). Some accounts have both one and the other of its kind. In addition, the account balance may 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.
Balance Types 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 we have already considered. As for the surplus, it arises when the funds received by the organization exceed the expenses incurred by it. In the opposite situation, when incomes are less than the actual costs, a passive balance is formed. Despite the fact that the difference can be either positive or negative, it is always recorded with a plus sign. This is due to the fact that the double recording principle is used when accounting for household assets: on the one hand, those operations that led to an increase in material assets are taken into account, and on the other, to a decrease.
Now we will understand what the opening balance and the ending are. The fact is that the analysis of operations in accounting is carried out for a certain period (for example, for a month). Upon its completion, the account is closed, and debit and credit indicators are calculated, the difference of which is carried forward to the next month. The balance at the beginning of the period calculated on the basis of previous operations is called the opening balance. It’s easy to guess what the final balance is. This is the balance at the end of the period. It is defined as the sum of the incoming balance and turnover for the period under review.
Calculation Example
In order to better understand what a balance is, let's look at a simple example of calculating it. Take the Materials tab. At the beginning of the month, it had 1000 meters of fabric (opening balance). During the billing period, another 200 meters were purchased and sold - 600. At the end of the month, the results of operations on this account were summed up. The final balance was: 1000 + 200 - 600 = 600 meters. Since this account is active, debit exceeds credit, then it will be debit.
Suppose that in the same month you formed a debt for fabric in the amount of 5 thousand rubles. For accounting we use the passive account "Settlements with suppliers". You gave him 4 thousand and 2 thousand received from him on the invoice. At the end of the month, the accountant calculated the balance: 5 - 4 + 2 = 3 thousand rubles. Since the account is passive, the balance will be credit.
Foreign trade relations
The Italian word for difference is also used in this area of the economy. What is the balance in international trade? Here, at least two of its varieties are distinguished - this is the balance of trade and the balance of payments. Let's see what these concepts mean.
Trade balance
The basis of foreign trade is export and import. The difference between these values for 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 the opposite trend is observed). Worldwide, the situation of excess of imports over exports (negative trade balance) is considered as negative. The explanation is simple: as a result of such a policy, foreign goods are flooding the country, which causes the domestic producer to suffer, and the money "flows" abroad. The recommendations of the International Monetary Fund even contain special instructions on the need to maintain a positive trade balance, and this provision is often one of the prerequisites for issuing loans to states. However, in America, for example, the opposite is true. Over the past few years, the import of goods has dominated this country, and the negative balance reaches tens of billions of dollars. At the same time, the living conditions of the US population can be envied by residents of many countries who are only striving for such well-being.
Balance of payments
In relations between states there are always monetary settlements. The difference between receipts from abroad and payments in favor of other countries is called the balance of payments. It is positive if it does more than leaves, and negative if it is the opposite. In the latter case, there is a decrease in the country's foreign exchange reserves (if settlements are made in currencies, for example, euros or dollars). To make up for the shortage, there is a need to sell domestic goods for currency. You can also replenish your account through stabilization loans.
Balance in payment receipts of housing and communal services
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 on the receipt. This column shows the balance on the personal account at the beginning of the current month. If the value is positive, then there is an overpayment for housing services, if it is negative, then a debt has arisen. At the same time, it is considered to be such only after the 10th day of the month following the estimated one (it is during this time that residents are required to pay utility bills). Thus, ordinary citizens are faced with the concept of "balance" in everyday life. In this case, it is considered as an incoming balance in the personal account of their living quarters.
Conclusion
In the article, we examined in detail the question of what balance is, what it is and in what areas it is used. The most widely used concept is used in accounting when analyzing the operations of receipt and expenditure of funds in an organization. However, it is applied in other areas, including foreign trade and even housing and communal services.