What is Ledger Balance?
A ledger balance can be defined as an opening balance that remains available during the start of each business day and comprises of all the deposits and withdrawals that are used in the calculation of the total amount of funds left in an account at the end of the day of the previous day.
How can Ledger Balance be Calculated at the End of the Day?
A ledger balance can be calculated by combining the closing balance from each business day for a particular month and dividing the result with the number of days from a particular month. The closing balance for every business day reflects all the financial transactions that are posted for that particular day along with all the pending financial transactions that have not been posted yet. In other words, it can be calculated by adding all the credits and deducting all the debits made from the opening balance of the day.
How does Ledger Balance Work?
A ledger balance is regularly updated at the end of each business day after the approval and processing of all financial transactions. This balance is calculated by banks once all the financial transactions such as interest income, deposits, cleared checks, wire transfers, debit transactions, cleared credit cards, etc are posted and rectified for errors. It represents the closing balance of the account as an opening balance for the very next business day.
Examples of Ledger Balance
- A has $400 as ledger balance out of which $300 belongs to a check that he has recently deposited. The deposited check is still kept on hold. In such a case, A can withdraw only up to $100 from his bank account.
- A has $100 as his ledger balance. His credits total for the day is $25 which he has deposited at his local branch. His debit totals for the day are $10 that he has withdrawn at an ATM. His balance totals at $115.
Difference between Ledger vs Available Balance
- Customers’ available balance is the aggregate amount of funds that is accessible for withdrawal purposes at a particular point of time while ledger balance is an opening balance that is available at the start of a business day.
- This balance may not change that frequently as compared to the available balance since it keeps fluctuating very often throughout the business day as financial transactions take place for a particular bank account.
- This balance is not updated frequently for real-time transactions while the available balance is constantly updated for the same.
- It is the opening balance and is updated only at the day end while the available balance can be calculated by deducting check holds, permanent holds and temporary holds from the ledger balance.
- Unlike available balance, ledger balance doesn’t comprise of debits and credits earned from transactions that are not yet posted to bank accounts.
Ledger Balance vs Memo Balance
- Ledger balance takes into account all the financial transactions such as cleared checks, finalized debit card transactions, etc that are officially posted.
- On the other hand, memo balance shows account balance, taking into account all financial items as and when they hit the holder’s bank account.
Can anybody Withdraw Money from the Ledger Balance?
No, one can take out only what is available. Some items like debit cards that are used as “charge cards” are not immediately reflected and hence one can only withdraw and spend the amount available in his or her bank account. For example- A has $5,000 as his ledger balance but his available balance is only $3,000. This means A can withdraw an amount equal to or less than $3,000.
Effect of the Financial Planning
Before making a withdrawal one must always have a look at his/her available balance. One must not take any decision on the basis of ledger balance as the same is not frequently updated. On the other hand, available balance is frequently updated and it includes updates with respect to real-time transactions too.
- It is the opening balance and not the closing balance for any business day. Similar to the customers’ available balance, the closing balance for ledger balance is generally calculated at the end of a business day.
- Account-holders may not necessarily get access to recent and updated information on mobile or net banking. There are only a few banks that display both the available and current balances which allow customers to tell how much funds they have consumed at their disposal.
- Even the bank statements are not reliable enough. As stated earlier, balances that are displayed on bank statements are derived from ledger balances on a statement date. Transactions like withdrawals, deposits, written checks, etc that are conducted post the statement date are surely going to impact the available balance.
- One must always ensure that he or she is taking the most recent balance into use at all times and therefore, the records must always be kept updated for the same purpose.
The ledger balance is the opening balance reflected in the bank account at the beginning of a business day and remains unchanged for the entire day. It is calculated by the bank at the end of each and every business day and it includes both debit and credit transactions.It is totally different from memo balance and customer’s available balance. It is always important for account holders to keep their records up to date since neither the bank statements nor online banking reflects the updated information.
All of these accounts are assigned with a particular account number. These accounts are divided into various groups such as liabilities, assets, revenues, equities, and expenses. Some of these accounts have credit balances while others have debit balances. All of these accounts are divided into different groups. Asset and expense account has a normal debit balance while liability, equity, and revenue account has a normal credit balance.
This has been a guide to what is a ledger balance and its meaning. Here we discuss how ledger balance works along with examples and its differences from available balance, and Memo balance. You can learn more about accounting from the following articles –