What Is a Ledger Balance?

When the working day comes to an end, the bank calculates your ledger balance, which contains records of any withdrawals and deposits made that day. This tells you the exact amount of money you have in your bank account - but only till the first transaction is made the following day. The ledger balance is the opening amount in your bank account on the morning of the following day. It stays the same all day. 

The ledger balance is commonly referred to as the current balance. This is distinct from the available bank balance, and we’ll discuss the differences and their importance in this post.

How Does Ledger Balance Work?

So, what is ledger balance? This is the balance that is updated at the end of the business day, when all of your transactions - deposits, interest income, wire transfers, cleared checks, debit transactions, and any error corrections - are processed.

Note that not all transactions are always processed the same day they occur. Processing delays in connection with pending deposits often happen because the bank has to collect funds from the financial institution that has issued the cheque or wire transfer. 

The bank statement includes a date for the ledger balance. Deposits made and written after that date don’t appear on the document. The ledger balance can be used, for example, to assess if the obligation to maintain a specific minimum balance is being met.

How Does Available Balance Work?

The key difference between your ledger balance and available balance is that the available balance informs you of the amount you can withdraw at any given moment. This balance changes more frequently than your ledger balance, but that doesn’t mean it’ll change instantly with every transaction you make. If you withdraw money from an ATM, for example, the amount you’ve taken will be deducted from your available balance right away, but if you write a check, the change will not be instantly visible on your available balance. 

Ledger Balance vs. Available Balance - An Example

To better understand the difference between your ledger balance and your available balance, check your ATM slip the next time you make a withdrawal. 

It’ll never show the same amount being in your ledger balance as your available balance. Let’s say you withdraw $1,300 from your account, and before doing this, your ledger balances say $14,495. After you make the withdrawal, your available balance will be $13,195, but your ledger balance will remain $14,495. This is because you currently have a pending transaction. Of course, the difference in balances will be even greater if you’ve previously made other transactions that day.

Why Understanding the Difference Is Important

Since the ledger balance is calculated only once a day, it’s possible for it to be higher than the amount of money you really have at your disposal. This can lead to unintentional overdraft, although not in all cases - some banks will return the transaction rather than allow their customers to go into an unarranged overdraft.

However, since most people find attempting to pay for goods or services and having their transaction denied an unpleasant and even embarrassing experience, it’s best to avoid the scenario altogether. 

Financial institutions don’t transfer funds right away after a transaction because deposits, cheques, and wire transfers can take a certain period before the funds reach the recipient. A business that receives a lot of cheques would probably have to wait days after it has been deposited to see any changes to its balance.

It’s essential to understand that the ledger balance is not always equal to the amount you actually own. Nor is the available balance, although the latter correctly informs you of how much money you have at your disposal at any given point.

Keeping Track of Your Balance

Since both your ledger and available balance “lag” behind the actual state of your bank account, it might be wise to keep track of all your spendings on your own by using an app or a physical notebook as a ledger. This way, you’ll still have to regularly consult your ledger balance and available balance to monitor any transfers to your account made by third parties, but you’ll avoid accidentally overdrafting your account and incurring overdraft fees. 

Monitoring your balance shouldn’t be too difficult since, thanks to modern banking apps, you can get an overview of your account at any time you want. The only thing you have to do is note your opening balance and then subtract your debts. The number you’re left with will be the amount you have.