The balance is the difference between the company's income and expenses for a certain period of time. It can be positive or negative.
The term balance can be viewed from the standpoint of accounting and foreign trade operations.
Balance in accounting
In accounting, the balance is the difference between the amounts of debit and credit, or between the amounts of receipts to the company's account and write-offs. The balance reflects the state of the company's cash on a specific date.
Distinguish between debit and credit balances. A debit balance occurs when the debit is greater than the credit. It is reflected in the assets of the balance sheet.
The credit balance reflects the situation when the credit is greater than the debit and is shown in the balance sheet liabilities. If there is no balance on the account (zero balance), it is called closed. In accounting, individual accounts can simultaneously have two types of balances - debit and credit.
In practice, not the entire history of the account is analyzed, but only a separate time period, for example, the last month or quarter. With this approach to analysis, the following parameters are distinguished:
- opening balance - it reflects the account balance at the beginning of the reporting period (for example, at the beginning of the month);
- balance for the period - the summarizing (total) result of operations for a certain time period;
- debit and credit turnovers reflect changes in funds on the account for a certain period;
- final balance - the account balance at the end of the period, calculated as the sum of the opening balance and debit turnover minus the credit balance, for the passive balance, the debit turnover is deducted from the sum of the credit balance and turnover.
Balance of payments
In foreign trade relations, the balance is analyzed in terms of the difference between the amounts of exports and imports for a certain time period, often for a year. At the same time, the balance of trade and balance of payments is distinguished.
Trade balance is the difference between export and import turnover. It can be either positive or negative. The foreign trade balance can be calculated by regions, individual countries or groups of goods.
A trade surplus occurs when exports exceed imports and indicates that a country is selling more abroad than it buys. This also suggests that the country does not consume the entire volume of products produced, as well as an increased demand for its goods in the international market. In recent years, there has been a positive trade balance in Russia, largely due to the export of energy resources and metals to foreign markets.
A negative balance indicates an excess of imports over exports. It is believed that the negative balance is a bad trend and a signal to the state that the market is dependent on imported goods. It also testifies to the infringement of the interests of domestic producers and the low export competitiveness of manufactured goods. The IMF points out the usefulness for economic development of a positive trade balance. A negative trade balance often leads to depreciation (devaluation) of money in these countries.
But a negative trade balance is not always a negative phenomenon for the economy. So, for example, in the UK and the USA (countries with a negative balance), this allows you to curb inflationary processes and transfer labor-intensive industries to countries with cheap labor.
The trade balance is the basis of the balance of payments. The latter is the difference between foreign receipts and payments abroad. A positive balance of payments is observed when external receipts exceed outgoing payments. A negative balance indicates an excess of payments from the country over receipts to the country.
A negative balance leads to a decrease in the country's foreign exchange reserve, so many countries strive to maintain a positive balance.
