In
banking
A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
and
accounting
Accounting, also known as accountancy, is the process of recording and processing information about economic entity, economic entities, such as businesses and corporations. Accounting measures the results of an organization's economic activit ...
, the balance is the amount of
money
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are: m ...
owed (or due) on an account.
In bookkeeping, "balance" is the difference between the sum of debit entries and the sum of credit entries entered into an account during a financial period. When total debits exceed the total credits, the account indicates a debit balance. The opposite is true when the total credit exceeds total debits, the account indicates a credit balance. If the debit/credit totals are equal, the balances are considered zeroed out. In an accounting period, "balance" reflects the net value of assets and liabilities to better understand balance in the accounting equation.
Balancing the books refers to the primary
balance sheet
In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
equation of:
:
Assets
In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...
=
liabilities + owners equity (capital)
The first "balancing" of books, or the balance sheet financial statement in accounting is to check iterations (
trial balance) to be sure the equation above applies, and where assets and liabilities are unequal, to equalize them by debiting or crediting owner's equity
(i.e. if assets exceed liabilities, equity is increased, if liabilities exceed assets, equity is decreased, both in the amount needed to balance the equation).
In addition to the balance sheet, the other primary financial statement (the
P&L or Profit and Loss Statement) also is balanced against the balance sheet, generally by the use of a "plug" such as imputed interest.
References
Accounting terminology
Accounting journals and ledgers
{{Accounting-stub