Future Business Leaders of America (FBLA) Business Calculations Practice Test

To find the average daily balance, you would:

1. divide the sum of the daily unpaid balances by the number of days in the billing cycle

2. divide the number of days in the billing cycle by the sum of the daily unpaid balances

3. multiply the sum of the daily unpaid balances by the number of days in the billing cycle

4. subtract the balance at the end of the billing cycle from the beginning balance and divide by the number of days in the billing cycle

The correct answer is: divide the sum of the daily unpaid balances by the number of days in the billing cycle

The average daily balance is a key concept in finance and is particularly relevant for credit card calculations and loans. To calculate the average daily balance, you take the total of all daily unpaid balances over a specified billing cycle and divide that sum by the number of days within that same cycle. This method accounts for fluctuations in the balance throughout the billing period, providing a more accurate representation of how much was owed on average each day. In this case, the correct approach is to sum the daily balances over the billing cycle and then divide that total by the number of days in the cycle. This gives you the average amount that was due each day, which can be essential for calculating interest and understanding overall debt levels. Other methods listed do not align with the standard calculation for average daily balance. For instance, simply dividing the number of days by the sum of daily balances, multiplying the total of daily balances by the number of days, or manipulating the beginning and ending balances would not yield the average balance accurately. These alternatives do not consider how each individual daily balance contributes to the total due and therefore don't reflect the usage of credit or loans effectively.