What is Book Balance?

Book balance is a banking term used to describe funds on deposit after adjustments have been made for reserve requirements, checks that have yet to clear, deposits in transit, or other pending deductions from an account. In other words, the book balance represents the actual money accessible for a company to spend.

Understanding Book Balance

The book balance describes the amount of money a company may use to pay vendors and make purchases after adjustments have been made for deposits in transit, checks that haven't yet cleared, reserve requirements, and interest received from float funds, which is money that's briefly counted twice, due to delays in the processing of checks.

An Example of Book Balance

Suppose Company ABC writes a check to Company XYZ. Until Company XYZ deposits that check and it clears, ABC's bank balance will appear as if those funds are available when, in fact, they're technically spoken for. Contrarily, by keeping track of a book balance, companies can precisely gauge the spending capital they have on hand, to either make purchases or pay vendors.