What are the dead in accounting for?

Balance: an important parameter for bookkeeping

Definition of balance

The word “Saldo” is derived from the Italian adjective “saldo, salda”, which translates as “to fix” in German. The plural of balance can be either balances, balances, or balances. All forms are correct.

The balance is the difference between the debit and credit side of an account. Specifically, the receipts on an account are offset against the issues at a certain point in time.

The credit side contains all incoming payments on an account for the account management. In the bookkeeping, the credit side is always on the left. Opposite it is the debit side on the right side of the account. All expenses are listed on it.

  1. Debit balance: If there is a higher turnover on the debit side than on the credit side, there is a debit balance. The account is colloquially "in the red".
  2. Credit balance: If the turnover on the credit side is higher than on the debit side, there is a credit balance. In everyday life it is said that the account is “in the plus”.

If the amount of your expenses is higher than your income, you have a negative balance, i.e. a debit balance. If you do not use an overdraft facility, in this case "overdraw" the account. If there is a debit balance for a longer period of time, the bank will ask you to settle it.

Significance for account management

Determining the balance is important for you so that you know how much money you have left in your account on a daily basis. The lower the credit balance, the less money you can spend until the account is overdrawn.

Significance for bookkeeping and company balance sheet

The balance is essential for accounting in order to determine the availability of capital and profits using different accounts. With the help of the balance, the balance of individual accounts can be calculated at any time.

The balance of an account can be transferred to the company balance sheet.

Asset and liability balance in financial accounting

When a balance sheet is drawn up, one no longer speaks of debit or credit balance, but rather of assets and liabilities. Within the balance sheet, a debit balance is shown on the left-hand side under assets, and a credit balance on the right-hand side under liabilities.

That is why the terms surplus and debit balance are used in balance sheets instead of debit and credit balances.

To offset a surplus, the same amount must be posted on the liabilities side of the balance sheet. The same applies to the settlement of a negative balance. Such a transfer is carried out at the company's annual financial statements or when an account is closed.

This booking method is important because there are established principles for booking, the so-called "principles of proper accounting".

Balance for account management and bookkeeping

In banking practice, the balance is used as a difference for an account. If the debit and credit are the same, there are zero euros on the account.

At the same time, the balance itself cannot be negative, since the account management is a relationship between debtor and creditor. In one case the bank is the debtor for the account holder, in the other case the account holder is the debtor and the bank is the creditor.

Thus, the balance is always a positive amount for one or the other party and a surplus that can always be attributed to a contractual partner.

The term "debit" in account management

If an account has a debit balance, this means that a permanent overdraft has been set up. The account holder thus becomes a customer. The debit balance thus results in a debit balance. According to Section 488 of the German Civil Code (BGB), this balance is a loan liability of the account holder to the bank.

The opposite term is "credit balances" and denotes a credit balance of the account. In this way, the account holder becomes the vendor of the bank and lends it his credit in this sense.

In a broader sense, payments into the account are repayments of loans if there is a debit balance. If disbursements are made with a debit balance, in the financial sense it is a disbursement of a loan.

In return, the payment of a credit balance is only a return of the money held and not a loan repayment.

Customer vendor and vendor customer in accounting

The terms debit and credit play an important role in accounting. There the "debtors" are entered in the balance sheet if they still owe a company money.

For example, a debtor can be a company that receives an invoice in December of the financial year but does not pay it until the following year.

Accounts payable customers are customers whose accounts are in credit at the end of the fiscal year. This position is shown in the balance sheet under “other liabilities”.

In this case, the invoice will only be paid later and until the payment deadline, the invoice amount is considered a credit from the company that receives the invoice amount.

Accounts payable are those creditors whose invoices have not yet been paid in full by the accounting company. The vendor becomes a customer vendor if his accounts are in the debit balance at the end of the fiscal year. Accounts payable with debit balances are shown in the balance sheet under “Other assets”.

Daily balance

The daily balance is the balance that is determined daily by a bank for a specific account. This is the arithmetical account balance that is displayed on one day after income and expenses have been offset.

Daily balance not always up to date

However, the daily balance is not always completely up-to-date. If, for example, you have paid with your debit card or credit card, the amounts are usually not posted until the next day.

These expenses are then not included in the daily balance. This applies in particular if there is a weekend or a public holiday between the use of the payment card and the actual debiting.

If you don't withdraw cash from your bank's ATM, the same daily balance will usually be displayed on Saturday and Sunday, although you may have paid with your credit card on both days.

Closing balance

A closing balance is the balance that is created at the end of an accounting period. According to Paragraph 355, Paragraph 1 of the Commercial Code (HGB), the current account must be closed once a year, i.e. a final balance. Interest is included. Some banks have their own terms and conditions, such as the savings banks, which provide for a closing balance per quarter.

Business accounts must be billed once a month. In this way, the sales tax is determined, which has to be paid to the tax authorities by companies subject to sales tax. This sales tax is recorded on invoices for expenses and income.

The final balance is also relevant for credit card holders, because it is carried out for every billing month, as the card holder receives an invoice for the total of his credit card payments.

Note deadlines!

Bank customers must carefully check the final balance or account statement, because they only have six weeks to report errors to the bank when debiting.

If the account holder does not object within this period, the waiver of the objection counts as consent to the closing of the account. In the event of incorrect SEPA debits, customers have eight weeks to object.

Disposal balance

If you use an overdraft facility for your account, the overdraft facility balance is usually stated. This is the current balance to which the overdraft facility of your account is added.

The amount of the overdraft balance therefore depends on the amount of the overdraft that your bank grants you as part of the overdraft facility. In practice, the overdraft balance is displayed for an account, for example in online banking.

This is then the amount of money that is available to you, including the overdraft that has been granted. However, you should take into account that you are on target and have to pay interest for it, even if you still have money after calculating the overdraft balance.

Value date balance

The value balance could also be referred to as the “balance under reserve”. Because compared to the conventional balance, the value balance also includes credits that have been credited but whose value you cannot yet dispose of. This can be, for example, incoming payments via checks. At the same time, direct debits or transfers that the creditor has already entered but which have not yet been debited from the account are also taken into account in the value balance.

The point of this balance is that the bank will notify you of the receipts, but the bank will give itself a deadline within which it can review checks for withdrawals. If the deadline has expired, the money is available to you or it will be permanently debited from your account.

This is important for the value balance

Since the value balance is money that is either still being credited to your account or debited from it, you must be careful in both cases.

Therefore, pay attention to the value date. It shows when the respective booking will be carried out after it has been checked by the bank.

  • With debits: Make sure that your account has sufficient funds when debiting a value date.
  • With deposits: Remember that the value balance has not yet been posted in full. You therefore cannot dispose of the money yet. However, if you do need money, you may need to use your credit line to withdraw money. In this case, overdraft interest is due, even if the amount of money above the value balance is theoretically already available. Please also take into account that credit interest will only arise on your account if the value date balance has been posted after the deadline.

How to calculate the balance

The balance in your account is the difference between income and expenditure. So you only have to offset income and expenses to determine the balance. The calculated number shows you whether your account is positive or negative. It can also show you the money that is still available. If you use an overdraft facility, you can use the overdraft facility balance.

An example of a daily balance:

PostBooking amount
wage2,500 euros +
Food150 euros -
Health insurance250 euro -
Monthly rate car200 euros -
Daily balance1900 euros +