OFFSETTING BALANCE Meaning and
Definition
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An offsetting balance refers to an equivalent credit or debit amount that balances out the value of another account, resulting in a net effect of zero. When two accounts have offsetting balances, their values effectively cancel each other out. This term is predominantly used in accounting and finance to maintain accurate financial statements and ensure that the overall financial position remains in equilibrium.
Offsetting balances are primarily employed in double-entry bookkeeping, which is a widely practiced method used to record financial transactions. In this system, every transaction is recorded in two separate accounts: a debit in one account and an equal credit in another. These two entries are the offsetting balances that counterbalance each other. Consequently, when all transactions are tallied or when financial statements are prepared, the offsetting balances erode any discrepancies and maintain a balanced equation.
For instance, if a company purchases equipment with cash, it results in a decrease in the cash account (debit) and an increase in the equipment account (credit). The equal and offsetting balances of these two accounts ensure that the net effect on the company's overall financial position is zero.
Overall, the concept of offsetting balances is crucial in accounting as it ensures the accuracy and integrity of financial statements, facilitating proper financial analysis and decision-making.
Common Misspellings for OFFSETTING BALANCE
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Etymology of OFFSETTING BALANCE
The term "offsetting balance" is not a word with a specific etymology. It is rather a combination of two words - "offsetting" and "balance" - both of which have separate etymologies:
1. "Offsetting": The word "offset" as a verb originated in the 17th century and comes from the Middle English word "offseten", meaning "to set off, balance, or counterbalance". It derives from the Old French word "offcet", which ultimately stems from the Latin word "officium", meaning "duty, service, or office".
2. "Balance": The word "balance" as a noun came into English in the 13th century from the Old French word "balance", which derived from the Latin term "bilanx", meaning "having two scales".
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