Determining your bank balance is not entirely straightforward. Deposits and debits clear throughout the day, and the bank needs to standardize the way it tells you how much money you have. Your ledger balance is the amount that was available at the beginning of the day, not considering any transactions that may have gone through during the intervening hours. In a way, the beginning of the day is an arbitrary cutoff point because it is simply one point during the day. However, your opening balance reflects all transactions from the previous day that go through after hours, after the bank no longer accepts any more transactions for the day.
Ledger Balance Versus Available Balance
When you ask a banker for your bank balance you often get two different figures. In addition to your ledger balance, you may also be shown a figure for your available balance. This sum is more current than your ledger balance because it reflects debits and credits that have gone through since the beginning of the day. For example, if your ledger balance at the start of business hours was $400 and your bank has paid out two $20 checks since then, your available balance will be $360, reflecting the more recent transactions. Even though your available balance reflects the most current information, the ledger balance is sometimes referred to as the "actual balance" because the items posted and subtracted to arrive at the available balance have not yet actually been taken out of your account.
Why the Difference between Ledger Balance and Available Balance Matters
It's important to know your available balance in addition to your ledger balance because the available balance reflects the sum that you can spend without incurring overdraft fees. Even though the amounts reflected in your available balance but not in your ledger balance have not yet been actually taken out of your account, they have nonetheless been posted. They will be taken out after hours when bank transactions clear. The available balance provides you with a warning that they're on their way. This information allows you to make additional deposits to avert overdraft fees.
Ledger Balance in a Trading Account
Trading accounts, like checking and savings accounts, process transactions throughout the day. Trading account transactions may take multiple days to clear and for funds to become available to you. If you choose to withdraw or transfer funds in the middle of the day or before the funds from a particular transaction become available, your broker needs to figure in these interim sums as well. Your account balance is your ledger balance, and your clear account balance is the balance that is available to you to withdraw or trade.
Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.