Term
Account balance
The difference between the debit and credit totals of a single account, meaning its current balance. For customer and supplier accounts it shows how much remains to be paid and underpins the sub-ledger and balance confirmations.
Updated
What it means
An account balance is the difference between the debit and credit totals of a single account, meaning its current balance. If debits prevail, the balance is a debit balance; if credits, a credit balance. Balances are determined on an ongoing basis and at the end of the accounting period.
For customer and supplier accounts, the balance shows how much remains to be paid and underpins the accounts sub-ledger, the overview of open receivables and payables by counterparty. For a bank account, the balance must match the closing balance on the statement.
The balances of all general ledger accounts form the basis for preparing the balance sheet and the profit and loss statement. Balance sheet accounts carry their balances forward to the next period, while income statement accounts are closed at year end.
How it works in practice
Regularly monitoring customer balances reveals unpaid invoices and helps start reminders in time. On the supplier side, it shows what has to be paid and when, preventing double payments and forgotten invoices.
Before the year-end close, a balance confirmation is carried out with customers and suppliers: the counterparty confirms it shows the same balance. Differences often reveal unrecorded invoices, credit notes or misallocated payments.
An unusual balance signals an error. A credit balance on a customer account may mean an overpayment or a mismatched payment, and a negative cash balance is always a mistake. Checking balances is one of the basic steps of the monthly close.
What to watch out for
The balance per counterparty may not match individual invoices if payments are allocated incorrectly. The total can look fine while old invoices remain unpaid and new ones are overpaid. The ageing structure must be watched too.
When switching to new accounting software, balances are transferred as opening balances. An error in the transfer then carries through the following years, so after migration it is essential to check that balances in the new system match the old.
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