The difference between these two balances lies in the fact that sometimes, financial institutions like banks do not release the deposit for a certain period of time in order to make sure it is a legitimate balance. These deposits include, the amount deposited once the working hours are over and the outstanding checks.
From the business perspective, the ledger balance represents the final amount after accounting for the financial activities of the previous night. It is a combination of the available amount and the amount that is pending for withdrawal. Whereas, the available balance is a combination of ledger balance and all other activities presented as outstanding electronic transactions.
You can access the available balance whenever you need it. However, it is not the same with ledger balance, because ledger balance represents those financial activities that are authorized, but are yet to be paid.
It is very important to understand the difference between these two balances in order to avoid the overdrawing of your account. For example, if you write a check after looking at your ledger balance, you may end up withdrawing more than the actual balance, which may eventually lead to overdraft charges. Similarly, if you are confused about identifying your balance, you can incorrectly assess the overall financial performance of your account.
Therefore, it can be confidently stated that you can avoid unnecessary charges and overdraft fees if you manage your account efficiently and keep track of your inflow and outflow including the outstanding receipts and payments. The accounting applications and computerized programs are very useful tools to help you manage your account.
