Average daily balance is the sum of the balance of each day of the billing divided by the number of days in the billing cycle. Consider a revolving line of credit that starts the billing cycle with a $100 balance.  This would be the daily balance until the borrower makes another charge or payment.  If a $50 charge is made on Day 5, the daily balance would increase to $150. The charge activity for the 30-day cycle looks like this:

Day 1   $100 (balance)

Day 5   $50 (charge)

Day 15 $200 (charge)

Day 20 $50 (charge)

If you add the balance of each day, including the days where there were no charges, the total would be $8,050 for the entire 30-day billing cycle. Divide 8,050 by 30 to get an average daily balance of $268.33.