What is a general ledger balance

General Ledger Balance

What is Ledger Balance?

A general ledger balance is an opening balance that remains available at the beginning of each business day. It includes all deposits and withdrawals that are used to calculate the total amount that remains in an account at the end of the previous day.

How can the general ledger balance be calculated at the end of the day?

A ledger balance can be calculated by combining the closing balance of each business day for a given month and dividing the result by the number of days in a given month. The closing balance of a business day reflects all financial transactions posted on that day and all outstanding financial transactions that have not yet been posted. In other words, it can be calculated by adding up all credits and subtracting all charges from the day's opening balance.

How does Ledger Balance work?

A general ledger balance is regularly updated at the end of each business day after all financial transactions have been approved and settled. This balance is calculated by the banks as soon as all financial transactions such as interest income, deposits, cashed checks, transfers, direct debit transactions, canceled credit cards, etc. have been posted and corrected for errors. It represents the closing balance of the account as the opening balance for the next business day.

Examples of ledger balance

  1. A has $ 400 in general ledger balance, of which $ 300 belongs to a check he recently deposited. The check on deposit will continue to be held. In such a case, A can only withdraw up to 100 USD from his bank account.
  2. A has $ 100 in general ledger balance. His total balance for that day is $ 25 on deposit with his local office. His debit amount for that day is $ 10 that he withdrew from an ATM - his balance is $ 115.

Difference between ledger and available balance

  1. The customer's available balance is the total amount of funds available for withdrawal purposes at any given time, while the general ledger balance is an opening balance available at the start of a business day.
  2. This balance may not change as often as compared to the available balance as it fluctuates very often throughout the business day as financial transactions take place for a specific bank account.
  3. This balance is not updated frequently for real-time transactions, while the available balance for the same is continuously updated.
  4. It is the opening balance and is only updated at the end of the day. In contrast, the available balance can be calculated by subtracting check, permanent, and temporary holds from the ledger balance.
  5. Unlike the available account balance, the general ledger balance does not consist of debits and credits resulting from transactions that have not yet been posted to bank accounts.

Ledger Balance vs. Memo Balance

  1. The general ledger balance takes into account all financial transactions such as cashed checks, completed debit card transactions, etc. that are officially posted.
  2. On the other hand, the memo balance shows the balance of the account, taking into account all financial items as soon as they arrive in the holder's bank account.

Can someone withdraw funds from the general ledger balance?

No, you can only take out what is available. Some items such as debit cards that are used as "charge cards" do not appear immediately. Therefore, only the amount available in your bank account can be withdrawn and spent. Example: A has $ 5,000 in the general ledger balance, but the available balance is only $ 3,000. This means that A can withdraw an amount equal to or less than $ 3,000.

Impact of financial planning

Before making a withdrawal, you always need to take a look at the available balance. You cannot make a decision based on the general ledger balance as it is not updated frequently. On the other hand, the available account balance is updated regularly and also contains updates on real-time transactions.

importance

  • It is the opening balance and not the closing balance for a business day. Similar to the customer's available account balance, the closing balance for the general ledger balance is usually calculated at the end of a business day.
  • Account holders may not necessarily have access to current and updated information on mobile or net banking. There are few banks that display both available and current balances, which customers can use to determine how much money they have used at their disposal.
  • The bank statements are not reliable enough either. As already mentioned, the balances displayed on bank statements are derived from the book balances on a billing date. Transactions such as withdrawals, deposits, written checks, etc., carried out after the settlement date will surely have an impact on the available balance.
  • One must always make sure that he or she is using the latest balance at all times, and therefore the records must always be updated for the same purpose.

Conclusion

The general ledger balance is the opening balance that is shown in the bank account at the beginning of a business day and remains unchanged for the entire day. The bank calculates them at the end of each business day and includes both debit and credit transactions. It is different from the memo balance and the customer's available balance. It is always important for account holders to keep their records up to date as neither the bank statements nor online banking will reflect the updated information.

A specific account number is assigned to all of these accounts. These accounts are divided into different groups, e.g. B. Liabilities, Assets, Income, Stocks and Expenses. Some of these accounts have balances while others have balances. All of these accounts are divided into different groups. The assets and expenses account show a normal debit, while the liabilities, equity and income accounts show normal balances.