What is a Ledger Balance
A ledger balance is the balance of a customer's bank account that displays on a bank statement. The ledger balance is computed by subtracting the aggregate number of debits from the aggregate number of credits for a given accounting period. In banking and business, the ledger balance is used in the reconciliation of book balances.
BREAKING DOWN Ledger Balance
The ledger balance differs from the customer's available balance, which is the aggregate funds accessible for withdrawal. The ledger balance includes all outstanding checks that have not yet cleared the account, as well as incoming funds that are not yet available. This is in part why it differs from the available balance.
The ledger balance includes the total deposits and interest income after subtracting the total number of debits and withdrawal amounts at the end of a business day or a specific period. It represents the existing balance on an account at the onset of the business day. The bank statement only provides the ledger balance to a particular date. Deposits made and checks written after this date do not appear on the statement. The ledger balance may ascertain whether the requirement to maintain a specific balance is being satisfied. It is sometimes included in bank account receipts.
Banks update an account’s ledger balance daily, weekly, or at a specified period, depending on the bank’s policy. Processing delays can occur because the bank must first be paid by the financial institution of the person or business who issued the check or other form of payment. Once the money has been transferred, the money is made accessible to the account holder.
Banks typically update a ledger balance within a day after all the transactions within a given period have been approved and processed. Banks calculate this balance after posting all the transactions, such as cleared checks, cleared credit card or debit transactions, and removal of errors.
Maintaining an accurate ledger balance is a vital aspect of proper financial planning. After viewing the ledger balance, if a check is written or a transaction is made, an account holder may withdraw more money than available, which may lead to bank overdraft charges as well as fees from the other party's bank or business. Monitoring balances on a regular basis alerts a customer of any unauthorized transactions that occurred or potential errors committed by the bank.