Adjusted Balance Method
What it is:
The adjusted balance method determines the finance charges on an account once all credits and debits for the accounting period have been posted.
How it works (Example):
The adjusted balance method is used to determine the periodic finance charges on an account, such as a bank or credit card account. This method calculates charges based on the account activity in a given period as reflected in the total of all posted debits and credits. Once all of these transactions have been posted, the finance (interest) charges for the period in question are calculated.
Why it Matters:
The adjusted balance method results in lower finance charges to the account holder than other methods because it uses the sum of monthly activity on an account at the end of an accounting period as its basis.
