What is Ledger Cash?

Ledger Cash

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Ledger Cash

Ledger Cash, often referred to as the ledger balance, is the balance in a bank account at the beginning of each business day; also known as the current balance. It includes all the deposits and withdrawals that have been posted to the account. It is called ledger cash or ledger balance because this is the amount recorded in the bank’s ledger for that particular account.

The ledger balance is different from the available balance, which is the amount of money actually available for you to spend or withdraw at any given time. The available balance may be less than the ledger balance if there are outstanding checks that haven’t cleared or deposits that are still on hold.

For example, if you have a ledger balance of $1,000 and you wrote a check for $200 that hasn’t cleared yet, your ledger balance would still show $1,000 but your available balance would be $800.

If you are talking about a company’s ledger, the “Cash” ledger account records all transactions that involve the company’s cash, which includes cash on hand and deposits in banks. This account is regularly updated to ensure the accuracy of financial statements.

Example of Ledger Cash

Let’s consider an example involving an individual’s bank account to understand the concept of Ledger Cash.

Day 1: John starts his day with a ledger balance (ledger cash) of $5,000 in his bank account. This amount includes all the finalized transactions from previous days.

On this day, John makes a couple of transactions:

  • He deposits a check from a client worth $2,000. However, this check requires two days to clear, so it’s not immediately included in the available balance.
  • He withdraws $1,000 cash from an ATM. This transaction is immediately reflected in his available balance.

At the end of the day, his ledger balance remains $5,000, but his available balance becomes $4,000 ($5,000 – $1,000). The $2,000 check deposit hasn’t cleared yet, so it isn’t included in either balance.

Day 2: The next day, John writes a check for $500 to pay for some services. This check is handed over to the service provider but hasn’t been cashed yet.

At the end of Day 2, his ledger balance is still $5,000. His available balance is $3,500 ($4,000 – $500). The check deposit of $2,000 hasn’t cleared yet, and the written check of $500 hasn’t been cashed yet.

Day 3: On Day 3, the check deposit from Day 1 clears. The bank now includes it in the ledger balance, which becomes $7,000 ($5,000 + $2,000). His available balance is $5,500 ($3,500 + $2,000).

This example shows that the ledger cash or ledger balance is the official balance on the account according to the bank’s records, but the available balance is what the account holder can actually use or withdraw at any given time, taking into account any pending transactions or holds.

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