The word balance may mean several different things in finance. The most common meaning refers to the remaining amount that a borrower owes. If, for example, a person or an entity borrows a certain sum from a lender, the balance will be the total amount of the loan minus all of the payments that have been made. This applies to all kinds of loans that are available in the market. It also applies to any kind of borrower, be it an individual, a group of individuals, or a company.
Balance may also refer to the amount of money available or left in an account. This is usually called an account balance, as compared to the loan balance defined in the previous paragraph. An account balance applies to all sorts of accounts, including 401(k) accounts, mutual funds accounts, and other familiar types of accounts.
How is the account balance calculated?
The figure is determined by deducting the debts or withdrawals from the credits or deposits. The resulting number is considered the account balance.
Depending on the kind of account, the balance may be either positive or negative. A positive balance may mean different things, again depending on the type of the account. For example, a positive balance for a credit card account means that the account owner owes the credit card company money. On the other hand, a positive balance for a savings account means that the owner of the account has money in the bank.
