Ledger Balance: Definition, Importance & Example

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    Table of Contents

    Overview: Ledger Balance

    what is 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.

    Definition of Ledger Balance

    To accurately define a ledger balance, 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.

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.

    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.

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      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. Ledger balance is different from available balance, and the difference has been explained earlier in the article. Keeping an updated record is essential for account owners as neither the net banking nor the bank statements display the updated data.

      If you are looking for a firm that will provide you with good ledger services, your search ends now. ODINT Consulting is a company whose goal is to take off a load of accounting from your shoulders. Handling finances takes a lot of time and is a task in itself. We at ODINT Consulting believe that the time you would devote to expand your firm should be spent on more important things, such as making memories with your family and friends. So, contact our staff today to experience the best ledger services.

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