Examples of Average Balances
Here are some examples that illustrate the concepts of average balance processing.
The first example presents the scenario. You have three balance sheet accounts: Account A, Account B, and Account C. Each account has a period opening balance of 0.00 (USD). The rest of the examples move on to show period, quarter, and average-to-date balances.
Day One
Here's the only transaction that takes place on the first day of the accounting period.
|
Account |
Debit |
Credit |
|---|---|---|
|
Account A |
1,000 |
|
|
Account B |
1,000 |
The transaction results in these balances.
|
Account |
Activity |
End-of-Day Balance |
Aggregate Balance |
Average Balance |
|---|---|---|---|---|
|
Account A |
1,000 |
1,000 |
1,000 |
1,000 |
|
Account B |
(1,000) |
(1,000) |
(1,000) |
(1,000) |
The aggregate balance on day one for each account is the same as the end-of-day balance. The average balance is equal to the aggregate balance divided by 1, the number of days in the period to date.
Day Two
Here's the transaction that takes place on the second day.
|
Account |
Debit |
Credit |
|---|---|---|
|
Account A |
100 |
|
|
Account C |
100 |
The transaction results in the following balances.
|
Account |
Activity |
End-of-Day Balance |
Aggregate Balance |
Average Balance |
|---|---|---|---|---|
|
Account A |
100 |
1,100 |
2,100 |
1,050 |
|
Account B |
0 |
(1,000) |
(2,000) |
(1,000) |
|
Account C |
(100) |
(100) |
(100) |
(50) |
The aggregate balance for each account is equal to the end-of-day balance for day one plus the end-of-day balance for day two. Another way to state this is that the aggregate balance is equal to the previous aggregate balance plus the current day's end-of-day balance. The average balance for each account is equal to the aggregate balance divided by 2, the number of days in the period to date.
Day Three
Here's the transaction that takes place on the third day.
|
Account |
Debit |
Credit |
|---|---|---|
|
Account B |
200 |
|
|
Account C |
200 |
Here are the resulting balances for all three accounts.
|
Account |
Activity |
End-of-Day Balance |
Aggregate Balance |
Average Balance |
|---|---|---|---|---|
|
Account A |
0 |
1,100 |
3,200 |
1,066.67 |
|
Account B |
200 |
(800) |
(2,800) |
(933.33) |
|
Account C |
(200) |
(300) |
(400) |
(133.33) |
The aggregate balance for each account is equal to the sum of the end-of-day balances for days one through three. And the average balance is equal to the aggregate balance divided by 3, the number of days in the accounting period to date.