Ledger balance vs available balance: definitions and tips

By Indeed Editorial Team

Published 5 September 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Finance professionals use several tools, such as a ledger balance and general ledger, to create accurate financial reports. Each tool has a unique purpose that equips these professionals to calculate a company's or individual's financial progress. If you're interested in accounting or banking professions, learning the function of these tools can prepare you for success in the field. In this article, we define ledger balance and available balance, explain why it's good to know the difference between them and share tips you can use to improve your accounting skills.

What is a ledger balance?

A ledger balance, also referred to as an opening or current balance, is the current account balance at the beginning of each day. The current balance sum includes any deposits or transactions from the previous night. When checking their current balance, it's important for companies to consider any pending deposits the finance department hasn't yet processed. This balance remains the same throughout the day.

For example, a company's opening current account balance is £600 on Monday morning. Then, the business receives a deposit of £1,400 and makes a debit of £200 on one of its cards. Regardless of how many of these transactions it processes on Monday, the company's balance remains at £600 throughout the day.

Related: What is basic accounting (principles, jobs and education)

What is an available balance?

An available balance is the ending current account balance that appears after the company processes any outstanding checks or pending deposits. This means that the available balance is simply a ledger balance minus any deposits and other credits. When checking their available balance, businesses know how much money they have available after covering their daily costs and receiving incoming payments from customers or clients. The available balance is the potential amount of money businesses have after all transactions are complete.

Using the above example, a member of the financial team checks the company's account on Monday morning and sees that the account balance is £600. Then, the business receives a deposit of £1,400 and makes a debit of £200 on one of its cards. This time, these transactions are taken into consideration to calculate the company's available balance:

£600 + £1,400 - £200 = £1,800

Related: How to prepare a balance sheet in 5 steps (with template)

Why it's important to know the difference between ledger balance vs available balance

Ledger and available balances are similar financial concepts, which is why some people may confuse them. Understanding the difference between these types of balances is beneficial for you if you work in accounting, finance or business development. When a business sends a payment or awaits one, it may take a few business days for banks to process them. To know exactly how much money the company has, business representatives can do the maths themselves but it's a time-consuming process. To facilitate that, financial institutions provide their clients with access to information about both their ledger and available balances.

Related: Example template for statement of account plus instructions

Calculating available balance

In some instances, you may want to double-check business accounts or calculate available balances without accessing the current account online. Here's how you can do it manually:

Determine the opening balance

The first step in calculating available balance requires identifying the daily opening balance. To do that, you can access the current account you're considering for your calculations. If you don't have access to it, you would ask someone from the accounting department to provide you with that number.

Identify and add credits

Next, identify and add all credits. These are any payments you expect the finance or accounting team to process that day. This includes payments from clients or deposits other colleagues have made.

Related: What is double entry accounting? (Definition plus benefits)

Identify and subtract debits

Lastly, identify and subtract all debits. Debits are transactions you or someone else has made, which involve spending money. The number after adding all credits and subtracting all debits from the daily opening balance represents the account's available balance.

Related: A guide to small business accounting (the basics)

Tip for managing general ledger

The general ledger is a master document that allows accountants and finance professionals to monitor company transactions, like those related to equity, revenue or expenses. There's a direct connection between an account balance and the general ledger, as both concepts help accountants gain a full view of company statements and make sure they're managing budgets efficiently. Here are some tips you can use to manage a company's general ledger and improve your accounting and finance skills:

Reduce the number of accounts

Large businesses tend to have numerous general ledger accounts, which accounting professionals use to create journal entries and monitor finances. Although separating some transactions, like employee compensation or payments to suppliers, can be a good idea, having too many accounts to monitor can lead to accounting errors. To maximise the potential with which a business can analyse its financial operations, it's often practical to merge similar accounts.

Determine who can create journal entries

Another way to optimise the general ledger is to implement procedures for the proper use of journal entries. Instead of allowing anyone in the accounting department to make journal entries, it can be beneficial to give access to a limited number of people. This way, as a team leader or head of accounting, you can make sure journal entries are made only by team members with the relevant expertise.

Related: A guide to accounting vs auditing (including skills)

Choose software that fits your needs

In the past, accountants used double-entry bookkeeping methods to manually add financial records to a physical general ledger. Nowadays, different software tools facilitate that process and even help automate various tasks. To decide which software is best for your team, consider what types of transactions you regularly process and what skills your team members have. For example, if you work with senior professionals who use computers less than their younger colleagues, then it makes sense to implement a tool with a more user-friendly, intuitive interface.

Related: 7 QuickBooks alternatives to try for accounting needs

Ways to improve accounting skills

Even if you work as a senior accountant or finance professional, it's important to stay up-to-date with industry news. Committing to lifelong learning helps you understand technological advancements that might revolutionise the field of accounting. If you want to improve your accounting skills, here's what you can do:

Learn to interpret data

In finance, the ability to analyse information is key for accurately managing budgets and accounts. To improve this skill, it's helpful to learn effective data interpretation methods. Learning to interpret data allows you to more accurately categorise and summarise financial information, such as income statements.

Related: What is data processing? (With benefits, types and tools)

Gain industry-specific knowledge

If you plan to stay with the same organisation or industry long-term, one helpful goal you can set for yourself includes learning about the specific industry. Each industry has different financial requirements and standard transactions it processes. For example, an accountant working at an entertainment company is likely to process more digital transactions, like donations from followers, than an accountant working at a nursing home.

Remember that communication is an accounting skill

Although to some people, it may seem like accounting is all about handling numbers, statements and other forms of data, it's challenging to succeed in this profession without strong soft skills. A key soft skill for accountants is communication. Knowing how to express your thoughts, ideas and suggestions allows you to provide better quality services to clients. It also makes you a more resourceful employee in your employer's eyes.

Related: What are channels of communication in the workplace?

Become tech-savvy

Mastering basic accounting software is one of many steps you can take to improve your knowledge of the digital tools accountants use. To make sure you can organise your documents, keep them safe and make any statements or reports accessible for others in your team, it's helpful to use other digital tools. Some examples include software for protecting documents with passwords or cloud storage platforms.

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