The sum of the outstanding balance for each day in a billing cycle, divided by the number of days in that billing cycle, yields a key financial figure. This calculation determines the balance upon which interest charges are assessed for credit cards and other revolving credit accounts. As an example, if a credit card account had a balance of $500 for 15 days and $1000 for the remaining 15 days of a 30-day billing cycle, the resulting value would be $750.
This figure is crucial in understanding the cost of credit. It directly influences the amount of interest charged, highlighting the impact of maintaining higher balances throughout a billing cycle. Historically, the adoption of this method provided a standardized approach to calculating interest, ensuring transparency and allowing consumers to compare the cost of credit across different lenders.