Bank Balance - What is a bank balance?
A bank balance is the amount of funds in your bank account
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Put simply, it is the amount of money in your bank account at a given time. The bank balance will fluctuate over the course of an accounting period, and can be viewed at any time.
How it’s classified in accounting
Many people believe that a bank account is in credit but in an accounting system, a bank account with available funds is actually a debit balance. This is because your bank statement shows the balance from the bank perspective and from the bank’s point of view, a company is a liability in the same way your suppliers are liabilities to your company.
This is because it is your money that is in the hands of the bank. Therefore, since your money is an asset to you, it is classified as a debit in an accounting system.
How it works
Maintaining balances in business accounts is essential for a healthy financial situation. Handling your company’s accounting needs involves ‘balancing the books’: ensuring the credits equal the debits.
An easy way to remember this is :
- Debit asset and expense accounts to increase their balance and credit to reduce.
- Credit liability, equity and revenue accounts to increase their balance and debit to reduce.
Credits, Debits, and Debitoor
With cloud-based invoicing and accounting software like Debitoor, it is no longer necessary to manually enter values for the credits and debits.
Automatic bank reconciliation auto-matches each payment to it’s corresponding invoice in your account, making the balancing of your accounts a much easier process!