A wave energy converter which uses a power balancing mechanism for turning intermittent and irregular wave motion input to smoothed continuous electrical power output is studied by combined scale-model testing and numerical simulation. The studied concept consists of a moored floating device together with a moving mass which is used to store instantaneous incoming power and deliver a controllable load to an electric generator over a unidirectional rotating shaft. A mathematical model describing the vertical dynamics of the wave energy converter is presented. The wave-body interaction is modelled with linear potential theory and a nonlinear rigid-body model describes the power take-off system. Experimental data from a scale-model test is utilized to validate and update the linear hydrodynamic model. A simulation study is then carried out in order to investigate the performance characteristics of the coupled hydrodynamic and mechanical system. An efficient time-domain algorithm is developed in order to simulate the discontinuous nonlinear characteristics of the combined system in non-deterministic wave situations. The simulation result provides a prediction of the absorbed power and capture ratio which can be used to evaluate the performance in different wave situations. The developed analysis procedure demonstrates its capability to produce computationally efficient performance predictions suitable for design evaluation and optimisation.