Legal Definitions - running account

A running account refers to a continuous record of financial transactions between two parties, where new debits (amounts owed) and credits (payments made) are regularly added, and the balance fluctuates over time without being fully settled after each individual transaction. It signifies an ongoing financial relationship rather than a series of isolated, one-time exchanges.

Here are some examples to illustrate this concept:

• Example 1: Business Supplier Credit

  Imagine a bakery that regularly orders flour, sugar, and other ingredients from a wholesale supplier. Instead of paying for each delivery individually, they have an agreement where the supplier sends a consolidated invoice at the end of each month for all deliveries made during that period. The bakery then pays that total amount. Throughout the month, each new delivery adds to the outstanding balance.

  This is a running account because there is a continuous record of transactions (deliveries and payments) between the supplier and the bakery. The balance isn't settled after each delivery; instead, it accumulates, and payments are made against the ongoing total, reflecting an enduring financial relationship.

• Example 2: Ongoing Professional Services

  Consider a small business that retains an accounting firm for continuous financial advice, tax preparation, and payroll services throughout the year. The accounting firm tracks all hours spent by its staff on the business's matters, along with any expenses incurred. Periodically (e.g., monthly or quarterly), the firm sends an invoice detailing these charges, and the business makes payments against the accumulating balance.

  This illustrates a running account because the accounting firm continuously adds new charges (for hours worked and expenses) to the business's account. The balance changes as new services are provided and payments are made, signifying an ongoing financial relationship rather than a single, one-time service.

• Example 3: Long-Term Construction Project Billing

  Suppose a property developer hires a general contractor for a large commercial building project that will span several years. The contract specifies that the contractor will submit progress invoices at various agreed-upon stages of completion (e.g., after foundation work, after structural steel erection, after interior fit-out). The developer makes partial payments against these invoices as the project progresses, and the contractor continues to add new charges for labor, materials, and subcontractors.

  This is a running account because the contractor continuously adds new charges for work performed and materials supplied over an extended period. The developer makes intermittent payments, and the overall balance of what is owed fluctuates but remains active until the entire project is completed and fully paid, demonstrating a continuous financial record.