The ledger balance is the balance available as of the beginning of the day. The available balance may be defined in two different ways; they are:
The ledger balance, plus or minus any subsequent activity during the day; essentially, it is the ending balance at any point in time during the day;or
The ledger balance, minus any checks deposited but not yet made available for the use of the account holder, as well as other credits that have not yet been posted to the account.
Ledger balance is balance at the start of the day. This is different from your available balance. Available balance is obtained when we adjust our ledger balance for subsequent activities. A ledger balance is calculated at the end of each day. This is presented net of all deposits and withdrawals of the current day. The next morning, the same balance represents the opening balance of the day.
What is Available Balance?
Available balance is the balance that is actually available at the moment. It is updated after every transaction. Available balance can be calculated after updating ledger balance for all the receipts and withdrawals etc. It is updated frequently. This balance changes several times during the day.
Ledger Balance Vs Available Balance
Let me explain this through an example. Suppose, your account had a ledger balance of $5,000 at the start of the day. Suppose, you made a withdrawal of $400 at 11:00 AM and added an amount of $500 at 1:55 PM also. Now Suppose, its 2 PM, your available balance will be as follows:
- Balance at the start of the day $5,000
- Withdrawal Made ($400)
- Addition (Credit) $500
- Available balance $5100
However, at 2 PM, your ledger balance will be the same $5,000 as it was at the beginning of the day. This balance remains the same all day and is updated at the end of the day.
Which type of Bank Accounts uses this Terminology?
Both these terms are used by banks to show the cash position of a bank account. This is normally a checking account. A checking account is a type of bank account from which funds can be withdrawn by writing a cheque. These funds can also be withdrawn by an ATM Transaction or an online transaction.
What is Balance?
In banking, balance is the amount of money remaining in your account. It is the amount of money owed by your bank to you.
What is Daily Ledger Balance?
Daily Ledger Balance means balance at the beginning of the day. It is the same as Ledger Balance. As it is updated daily, that’s why some people love to call it “daily ledger balance”. This balance is closed at the end of each day. The next day, it is the same balance which appears as your starting balance.
How To Calculate Ledger Balance at the end of the day?
1. Take the opening balance of the day.
This is your Ledger Balance at the start of the day. Suppose it’s $9,000.
2. Add all the credits made to the account.
You might have made some additions to your bank account or some customers might have paid you online. You just need to calculate the sum of all the credits and add it to the opening balance. Suppose All the credits during the day were $1,500. Add this $1,500 to the opening balance of $9,000.
3. Subtract all the debits made from the account.
Take the sum of all the debits made from the account. Then Subtract it from your opening balance. Suppose all the debits throughout the day amounted to $1,000. You need to subtract it from your opening balance of $9,000.
4. The final Balance is your Ledger Balance
By adding all the credits ($1,500) and subtracting all the debits ($1,000), and adjusting for any other errors, you’ll be left with a final figure at the end of the day. This is your Ledger Balance. In our example, its $9,500 ($9,000+$1,500-$1,000).
The effect of Ledger Balance on Financial Planning
If you’re planning to make a withdrawal, you shall do so after having a look at your available balance. You should not decide solely based on ledger balance, as it is not updated frequently. Available balance is updated frequently and includes real-time transaction updates.
Suppose, your Ledger Balance is $6,000 and your Available balance is $4,800. You wrote a cheque of $5,200. This withdrawal will lead you to an overdraft of $400 as your available balance is only $4,800, not $6,000. $6,000 was your balance at the start of the day, now it is $4,800. This might be because of some withdrawals you already made at some other point of the day.
However, there is an associated risk with only looking at available balance while making financial planning because there might be a debit or credit from your account which might get rejected. Thus, it may lead you to an overdraft.
An Alternate Point of View
As these terms are widely related to checking accounts, so while we might argue that available balance is the real balance because it is updated for real-time transactions. But some experts argue that ledger balance is the real balance because it does not include debits and credits that haven’t been posted yet. They say that it’s always safer to focus on ledger balance while making a decision because a transaction may not clear. (In this case, the available balance may not be correct)
- Ledger Balance is the closing balance of current day and opening balance of the next day.
- Ledger balance remains the same all day.
- Ledger balance is normally called as Current balance.
- Available balance is the balance of a checking account at any point of the day.
- Current Balance remains the same whilst available balance changes several times during the day.
- Current balance is constant whilst available balance incorporates real-time updates of transactions (both debits and credits)
- Current Balance does not update when an online transaction is made whilst available balance updates when an online transaction is made.
- Current Balance does not update when an ATM withdrawal is made whilst available balance updates when an ATM transaction is made.
Ledger balance is your bank balance at the start of the day. However, available balance is obtained when you adjust your ledger balance for any debit or credit of the day. A detailed analysis is presented in this post.
Yes it is possible but you need to check your available balance first. Suppose your ledger balance was $7,000 but your available balance is $5,000. You can withdraw only up-to $5,000.
The answer is no. Ledger balance is the balance at the start and end of the day. So, If an overdraft occurs between these times, It will be not accounted for in the ledger balance. Ledger balance remains constant throughout the day. It will be accounted for in the ledger balance at the closure of the day.