When you log onto your personal or business checking account via your financial institution’s online service you will see two figures, the ledger balance and the available balance. At times, these two amounts are the same, but many times they’re not equal. The difference between the balances can make a difference in how you track your money.
A ledger balance is calculated by subtracting the total number of debits from the total number of credits in a given bank account. It is a beginning of day balance. The ledger balance can be thought of as a snapshot of where the account stands with the financial institution. It changes as new debits and credits are added to or subtracted from an account and is used in reconciling account balances.
The available balance is the amount of money that is available to be withdrawn from the account and is a beginning of day balance plus or minus any of the day's credits or debits. The available balance includes debits that have not cleared the account, whereas the ledger balance doesn’t always reflect those transactions. Ledger balances can be thought of as the official balance of an account.
Example: Low Available Balance
For example, one afternoon when you check your account via your financial institution's online system, the ledger balance is $100 and the available balance is $85. Earlier in the day you bought an item for $15. The transaction has been initiated by the store but hasn’t completely cleared your bank account yet. The ledger total is what the bank's books read, and the available balance is the actual amount of funds you have available for your usage.
Example: High Available Balance
In another example, you check your account in the morning and the ledger balance equals $250. The available balance also equals $250. Your employer deposits $100 in the account a few hours later. Then, you make a lunch purchase for $7. After lunch, you check your account and the two totals differ. The ledger balance still reads $250, but the available balance equals $343. This is because the most recent two transactions have been initiated but not completed with the financial institution.
When you log onto your account online, the layout you see is the modern-day version of the old accounting ledger. Banking records, whether they’re online or on paper, serve the same purpose. They allow customers to see data at a glance and compare their calculations to the financial institution’s figures. The ledger balance versus available balance question arises out of modern technology and the ability to track bank records throughout the day, as opposed to having to travel to the institution and compare ledgers with an employee.
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