# Balance

The balance, in the field of accounting, is the difference between income and expenses (similar to expenses). The balance can be of three types: creditor, debtor and zero.

The balance of an account is the result that we obtain after subtracting from the income of the account all the records that correspond to the expenses during the period. Thus, for example, when we review our bank account, we can verify that the balance at the end of the month is the difference between our income and expenses during that particular month.

The concept of balance is applied to accounts of various types, whether of individuals, companies, organizations and countries.

T account

## Balance types

According to how the difference between income and expenses is observed, there are three types of balance:

• Debtor: Expenses are higher than income (negative)
• Creditor: Income is higher than expenses (positive)
• Zero: income and expenses are equal (zero)

## Balance example

Before starting with the example, it is worth remembering what an accounting account is and how we must record income and expenses in them in order to obtain the corresponding balance.

The ledger accounts are the basic elements used to carry out the accounting of an organization. They have a T-shape, with two columns where we will record the movements (income and expenses) of the period we are analyzing.

The column on the right is called "Credit" and the column on the left is called "Debt." Every time we want to record a transaction, we must take into account what type of account we are analyzing since the same transaction can be recorded both as debit and credit depending on what exactly it represents in the account we are observing.

Annotations must be made as follows: (i) debits and income are recorded as debits and, (ii) credits and expenses are recorded as credits.

In addition, we must bear in mind this simplified rule: Assets and negative income accounts are added by Debt and subtracted by Credit, while liabilities, net worth and positive results accounts are added by Credit and subtracted by Credit. Has to.

Now suppose a company has an account at a commercial bank. At the beginning of the month the company has 4,000 euros contributed by the partners. During the month the following expenses were made: 1,000 euros for rent, 2,000 euros for the purchase of machinery, 950 euros for raw materials and 300 euros for office supplies. What is the balance at the end of the month? What type of balance is it?

HAS TO

TO HAVE

4,000 euros

1,000 euros

2,000 euros

950 euros

300 euros

TOTAL: 4000 euros

4250 euros

As we can see, since it is an asset account, income goes to debit and expenses to credit. The total debit at the end of the month is 4000 euros, while the credit is 4250. The balance is -250 euros, it is a debit balance.

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