Answer
The average daily balance for a credit card’s billing period is the sum of the unpaid balances for each day in the billing period divided by the number of billing days in the billing period and numerous transactions during a particular billing period makes the computation of average daily balance quite tedious.
Work Step by Step
The users of the credit card are required to make minimum monthly payment in respect of services being availed by them through the use of credit card. The payments for the credit card mainly depends upon the balances that are unpaid and the time duration involved in a particular billing period.
Average daily balance can be computed using the equation as shown below:
\[\text{Average daily balance}=\frac{\text{Sum of unpaid balances for each day in the billing period}}{\text{Number of billing days in the billing period}}\]
Whenever a credit card holder makes the payment, the balance available in the credit card fluctuates on day to day basis. As a result, a lot of transactions may occur during a particular billing period. Thus, the computation of average daily balance by hand can be quite tedious on account of these transactions being involved in the computation.
