Banking terms can be difficult to comprehend for those who just started to learn about their bank account. In this article, however, we will try our best to explain in detail one of the most basic and necessary banking concepts. “What is a ledger balance?” You’ll definitely need to know its meaning since it will be the thing you see first when checking your account.
What Is A Ledger Balance, Basically?
A ledger balance is the sum calculated by the bank after a business day. It’s the result of all the withdrawals, deposits, and transactions that the account owner makes throughout the day. When a new business day starts, the former day’s ledger balance becomes the opening balance and remains the same throughout the day.
“What is a ledger balance?” A starting mark for your day, made from the calculations of yesterday!
1. How Does The Ledger Balance Work?
Your bank teller, back in the old days, recorded all your activities on your account. Machines and automatic formulas do this job in the modern era. The final goal is to count on everything you do within a business day (transactions, cheques, deposits, etc.) to end up with a starting point for the next day!
The bank will also have to take into account pending deposits as they wait for funds from cheques and transfers of the people who issue them. Once the bank has finished its calculations, the money will be available to the account owners.
In short, what is a ledger balance? Everything is updated at the end of the day to pump out a sum we call the ledger balance!
2. Why Is It So Important?
Ledger balances are a way for banks to keep track of their customers’ activities and account usage after the day ends. Its main function actually lies at the beginning of the next day, however, serving as the ground for further transactions.
Most of the time, when you view your account, it’s the available balance that you see (which we will talk about later) and not the ledger one. There are banks that display both and cause some confusion to their users.
What is seen on your bank statement might not be the actual ledger balance either. As ledger balances are concluded at the end of the business day, the balance on your statement form will be the one calculated on the day it’s printed, which can be 3-5 business days before you receive it.
Any transactions you have made within those 3-5 days will not be accounted for in your bank statements. Please keep this in mind while dealing with the numbers given to you by your bank.
To work with the most accurate ledger balance, you, as the account holder, have the choice to keep your own ledger! Your sum will be notified to you once you have closed activities.
But as you venture further into your list of banking terms, you’ll stray from learning about “what is a ledger balance?” and start moving onto “what is an available balance?” These terms are not interchangeable, and they get mixed up pretty often. Let’s learn the difference next up!
Ledger Balance VS Available Balance
A ledger balance is not an available balance since the former stays the same throughout the entire day. Your current balance is available for withdrawals, therefore will change in real-time as you do your transaction.
What you see at your local ATM is the available balance, and you can see this very clearly as the ATM will display your deducted balance after you’ve done your part. Both the ledger balance and the available balance will not count in outstanding checks.
It’s very important to understand the distinction between these two kinds of balances provided to you with your account. They both will factor into your financial planning, and you would not want to lose money over some misunderstanding or false compensations. What is a ledger balance’s difference from available? The answer lies in the next paragraph.
Since the ledger balance stays fixed from the end of the previous day to the end of the new day, it doesn’t represent exactly what you have. One way things can go wrong is if you write a check or perform some transactions based on the ledger balance, you may take out more money than what’s available to you.
Vice versa, if you mistake the available balance for the ledger one, you will not be updated of any changes made in the day. There have been cases where people do not realize until too late that an error has occurred from the bank, making them lose money falsely, or someone has made an unauthorized transaction on their account because they are too focused on the ledger balance.
To Sum Up
So, what did we learn? What is a ledger balance? To put it simply, a ledger balance is the end result of a business day. It’s not a fixed state since at the beginning of the next business day, it’s an opening balance. A ledger balance helps you and your bank keeps track of your spending. With this knowledge, you’re one step closer to understanding the full potential of your bank account!