What is Ledger Balance?
A ledger balance refers to the total amount of money in a bank account including withdrawals and deposits that is calculated at the end of each working day. Also called the current balance, the ledger balance is what the bank calculates after processing all forms of transactions including deposits, interest income, incoming and outgoing wire transfers, cleared cheques, and credit card or debit transactions. The next morning, this ledger balance reflects the existing balance in the bank account and remains constant all day long. The ledger balance can be used to verify if the required minimum balance is being maintained, and is also reflected in bank account statements.
How to Calculate Ledger Balance?
To calculate your ledger balance, start with the opening balance, then add any credits (payroll or payments received), and subtract any debits (withdrawals or transactions). The formula for calculating ledger balance is:
Ledger Balance= Opening balance + (credits – debits)
What is the Importance of Ledger Balance?
- Provides accurate account balance after all transactions throughout the day.
- Helps maintain the minimum required balance set by the bank to avoid penalties or fees.
- Assists in budgeting and financial planning as it reflects all transactions made throughout the day.
- Helps verify and record the debits and credits accurately.
- Regularly monitor account or history of transactions for any errors or unauthorized payments, ensuring account security.
Thus, the ledger balance depicts the total amount in the bank account after all completed transactions and changes at the end of each business day. Unlike available balance which records pending transactions and changes frequently throughout the day as soon as a transaction has been made, ledger balance does not include real-time transaction updates.
