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The ledger balance, also called the current balance, is the opening amount of money in any checking account every morning. The ledger balance should remain the same for the duration of the day.
At the end of each business day, once all the transactions have been processed, your bank updates the ledger balance in your account. That is the opening ledger balance you will see on the account at the start of the next day.
For example, imagine it is a Tuesday morning and you look at your checking account’s ledger balance to see that it is $1500. Throughout the day, you make several purchases totaling $250 on your debit card and initiate a $750 ACH debit charging a customer for an invoice. Regardless of these other transactions, your ledger balance for the day remains at $1500 because it is reflective of the balance in your account at the start of the Friday business day.
Keeping regular track of your ledger balance is an integral part of financial planning and management for a business and ensuring that you are aware of your current financial outlook.
One thing that is especially important to keep in mind is that, within your account, the ledger balance and the available balance (i.e. the amount available to you to use for transactions) are not necessarily the same. Let’s compare the two:
Ledger Balance:
- Shows the balance in an account at the start of the day, after the previous day’s transactions have been posted and accounted for
- Reflects the amount of money in an account, without reflecting any pending transactions
- Is a good metric to help with long-term financial planning and decision making
Available Balance:
- Reflects a real-time balance of what funds are available in an account
- Changes as withdrawals or deposits are made, including transactions made with cards or checks
To look at our previous example in terms of available balance vs. ledger balance , imagine that it is still the start of the business day on a Tuesday. Your ledger balance is $1500 and your available balance is also $1500. However, as you make $250 worth of transactions on your debit card, your ledger balance stays the same, but your available balance goes down from $1500 to $1250. When you initiate the $750 ACH debit , both your ledger balance and your available balance remain the same. Your ledger balance doesn’t change because it reflects the balance at the start of the day and your available balance doesn’t change because that ACH debit will take anywhere from a few hours to a few days to process and have the funds become available in your account.
It is important to monitor both the ledger balance and the available balance regularly, to avoid scenarios where transactions are made in amounts greater than the available balance as these can lead to overdraft fees, returns or reversals, or other transaction issues.
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