A running balance is a continuous update of an account balance that reflects all transactions occurring over a certain period. In accounting, it provides a real-time snapshot of the amount of money available in an account after each transaction is added or deducted.
The running balance is calculated by starting with an initial balance and then adding credits and subtracting debits as transactions occur. For example, if you begin with a balance of $500 and then receive a payment of $200, your running balance would update to $700. If you then make a purchase of $150, your balance would adjust to $550. This helps individuals and businesses keep track of their financial position without having to wait for periodic statements.
Having a running balance is crucial for effective financial management. It aids in budgeting, cash flow management, and monitoring spending habits. Users are better equipped to avoid overdrafts and ensure they have the necessary funds for upcoming expenses.