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Ledger balance is the total amount in a bank account, including outstanding debits, and is different from the available balance, which is the amount that can be withdrawn. Understanding the difference is important to avoid overdrawing the account.
Ledger balance is a term often used in banking. It means the total amount, or balance, in an account at any given time. This amount generally includes all money in an account, including amounts that have outstanding debits against you. For example, this balance includes outstanding check and debit card amounts that are pending payment. It may also include deposited funds that are not yet available.
A person usually sees the term general ledger balance when looking at their bank statement, although it is sometimes included on account receipts. It can be calculated by considering the total number of credits, also called deposits, during a given period of time, versus debits or withdrawals, during the same period of time. Debits are subtracted from credits to get a figure that is the general ledger balance.
Many people look at their bank statements and notice that they have two balances listed. They may wonder why the balances are different, despite the fact that they are listed for the same account. The reason is that the general ledger balance represents the total amount of funds in an account, but is different from the amount that a person can use or withdraw. The amount that is available for withdrawal is generally listed on a person’s bank statement as their available balance.
To understand how the general ledger and available balances work, consider a bank account with a general ledger balance of $200 US dollars (USD). Of this amount, a bank account holder may have a check for $50 USD pending payment on their account, as well as a $40 USD debit card transaction. In such a case, the account holder has an available balance of $110 USD that can be withdrawn, in accordance with the terms of their account. Even though your general ledger balance reads $200, you cannot withdraw the full amount because $90 is pending payment. Once check and debit card payments are fully processed, your general ledger balance will then drop to $110 until you make another deposit or withdrawal.
Understanding the difference between these balance types can be important to avoid overdrawing your account. If a person considers only his general ledger balance, he may write checks or arrange payments for more than he actually has available. This can result in overdraft fees at your bank, as well as fees charged by the company or person to whom you sent checks or made payments.
Smart Asset.
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