Overview: Ledger Balance
Available balance and ledger balance are official terms used by banks to highlight the situation of cash in a bank account. Ledger balance can be stated as the balance present at the start of a day.
Available balance, on the other hand, is the amount deducted from the ledger balance because of any transaction that took place in the day, or the amount that got cleared through a cheque deposition in the bank account. It can also be the final balance after the credits are made into the account.
In this article, we will be going to help you understand the importance of ledger balance and also the difference between ledger balance & available balance, so stick with us until the end.
What is a meaning of Ledger Balance?
To accurately define a ledger balance, Ledger Balance means it is the sum of all the transactions from a bank account. It also equals the total of all credits made into an account.
Ledger balance can include withdrawals, deposits, sales, purchases, check payments, debit card swipes, wire or bank account transfers, money market fund deposits or withdrawals, automated clearing house debits, investment sales and purchases, any payable transaction/receivable, or any loan you have supplied to your clients.
There are many distinct terms for ledger balance such as:
- Bank statement balance
- Checking account balance
- Ending balance
- Current balance
- Opening balance
To sum it up simply,
Ledger Balance = Credits for a certain accounting interval – the cumulative number of withdrawals for a certain accounting interval.
Importance of Ledger Balance
Undoubtedly, a ledger is the backbone of any firm. Accounting is unique in that it keeps track of payments in distinct accounts. When a financial period is coming to an end, all accounts will have all of the knowledge about all of the withdrawals that occurred during that period.
The numerous importance of ledger balancing are discussed below:
- Business fundamentals: The ledger gives a detailed record of all withdrawals, allowing the business to examine expenditures & revenues. Whether there are any inconsistencies between the two, the appropriate steps are done.
- Understanding of resource book value: The opening balance is the central location for all of the company’s asset data. It uses a different account for every asset as well as all dealings associated with it. At any moment, the ledger could be used to calculate the purchase price of any asset.
- Management-friendly: The information provided by the financial statements is used to determine the future growth of the firm or the causes of any losses. Based on it, the administration may make successful decisions.
- Explanation for the discrepancy in expenditures or revenues: The Ledger documents all of the company’s expenditures as well as all of its earnings. Therefore, if their balance differs in any way, they must reassess and correct the situation.
- Owners of the account don’t usually have the access to the latest and updated data on their phone or through net banking. Not many banks allow viewing both, the opening balance, and the available balance. These balances help customers in understanding what amount has been consumed and what is left.
- The bank statements aren’t to be fully trusted: The balance mentioned on the bank statement is taken from the opening balance on a particular statement date. So, withdrawals, such as written cheques or deposits, held after the statement date largely affect the available balance.
Ways for calculation of Ledger Balancing
- Any daily transaction, even those made with a credit card, might be considered a debit. Credits include payments from consumers or refunds, as well as deposits like wages.
- Your current ledger balance will be determined by multiplying the credits by the debits from your opening balance.
- By starting with the opening balance, deducting the debits, and adding any credits or deposits, you may get the ledger balance.
How does the ledger balancing operate?
A ledger balance won’t change until the bank has finished processing transactions at the day’s completion, and the following day it will display a fresh opening amount. Throughout the day, a ledger balance won’t offer current information. In accordance with federal guidelines, institutions are permitted to temporarily hold onto any placed money for a predetermined amount of time before releasing it for usage.
A pending deposit is a cash that is on reserve but hasn’t yet been given permission to be used. Once the bank confirms that it has received the money from the account owner who submitted the cheque or any other deposit instrument, the money will be added to your available balance.
The ledger balance up to a given date is the sole information provided in the financial statements. The statement does not include payments or withdrawals that were received following this date. If a specified minimum balance is required to be maintained, it could be possible to check this using the ledger balance.
Difference Between Ledger Balance And Available Balance
As mentioned earlier, ledger balance and available balance are two separate terms.
So, let’s take a detailed look at the difference between Ledger & Available balance:
When you examine your bank account, you’ll see a ledger balance as well as an available balance. These phrases refer to your total balance, but they are not interchangeable. It may appear that you must concentrate on the available balance, however, the opening balance is your true balance. Just the debits and credits that have already been processed into your bank are included in the opening balance.
It contains all outstanding checks that haven’t passed the account, as well as any incoming cash that hasn’t yet been released. When deciding if you have enough amount to make a transaction, you must give greater importance to the opening balance. It is better to use your opening balance since the available balance won’t disclose the uncleared amount.
So, Available Balance = Amount accessible after any credit or debit in the account.
Here is a brief distinction between ledger balance and available balance:
Ledger Balance | Available balance |
Ledger balance reflects the number of funds remaining at the beginning of the day following the accounting for reported transactions from the previous working day. | Available balance indicates the current balance of an individual’s checking account |
It provides an aggregate representation of the funds in your financial institution’s account without taking into account any pending operations. | It will fluctuate throughout the day as you make financial withdrawals or deposits |
It reflects the amount of money that is now accessible | Serves as a more accurate statistic to utilize when making long-term financial plans |
Read More: Cash Book
Is it possible to withdraw the opening balance?
Whenever you take money out of your bank, it displays as a debit on your statement. This transaction will appear in your opening balance; however, the available balance will not update till the amount is deducted from your bank account. As a result, whenever you withdraw money, you always take it from your opening balance rather than your available balance. Eventually, you can take money out of your ledger account.
Example of General Ledger
If a person has Rs 5000 as his/her opening balance. After depositing Rs 1000 at a local bank branch, his/her credits sum will be Rs. 1000. Then the person withdraws Rs. 500 from the ATM and now his balance totals at Rs. 5500.
Read More: General Ledger
| Particulars | Debit | Credit | Balance |
|---|---|---|---|
| Balance a/c | 5000 | 5000 | |
| To Cash a/c | 1000 | 6000 | |
| Balance a/c | 500 | 5500 |
Conclusion
As explained before, the ledger balance is the current balance present in your account at the start of a day and remains as it is for the rest of the day too. The bank makes a total of the credits and debits processed during the day and makes a calculation accordingly. The ledger balance serves as an important tool for an account’s financial stability. As such, it is employed by individuals as well as firms in order to keep track of cash flows.
If you are looking for a firm that will provide you with good ledger services, you must consult with professional experts from OnDemand International.
FAQ’s
The general, debtors, and creditors ledgers are the three different categories. Information from journals is accumulated in the general ledger.
Ledger balance is the amount of money in a bank account at the beginning of a given day. It is calculated at the end of each business day after all credits, withdrawals, and interest from a given day’s activity have been factored in.
It acts as a check to make sure a debit recorded in one ledger account has been matched with a credit in another for every transaction.
A bank calculates a ledger balance at the end of each business day that includes both withdrawals and deposits to determine the overall amount of money in a bank account.
Due to presented against the account but unprocessed pending transactions, the available balance for your account may differ from the balance at hand.
- While the ledger balance displays the overall sum of cash in your bank account without considering any outstanding operations, the available balance will fluctuate throughout the day as you withdraw or transfer funds at any given time.
- The available balance represents the number of funds that is currently on hand as opposed to the ledger balance which is a more accurate statistic to utilize when making long-term financial goals.
