Average Float Balance (2/14)

Account Analysis consists of balances and fees which comprise a basic math calculation. There are 14 balances that I refer to as "Remember the Math". I will discuss all 14 in 14 different posts.

Average Float Balance

When I think of how to explain what is Float I think of banking.  On my bank statements, I usually see a line titled "Current Balance" and another line titled "Available Balance".  The "Current Balance" shows the amount of funds in my account plus any pending cash inflows or outflows in the form of debits or credits.  Since these are pending transactions, they have not cleared my account yet but will soon (usually in the next 1 or 2 business days).

So, since the money is still technically "in" my account it is accounted for in "Current Balance".  However, since that money is "reserved" for a pending transaction(s), it is not available for me to use so it is not accounted for in the "Available Balance" field.

For example, below are a list of transactions which occurred on 01/15/2013:

Beginning Balance: $305.67

Deep Dish Pizzeria ~ $26.99 (Pending Debit)
Hot Yoga Class Package ~ $52.00 (Pending Debit)

Current Balance*: $305.67
Available Balance: $226.68

Where is the $78.99?  It is "floating"...

The two pending debit transactions which amount to $78.99 are still included in the Current Balance but are excluded from the Available Balance because the Available Balance indicates the amount of funds the account holder has "available" to withdraw, invest, transfer, etc.

The Float Balance is the daily recorded balance for all pending transactions while the Average Float Balance is the sum of those daily float balances over the period divided by the number of days in that period.  

Since the Average Float Balance follows the Average Net Ledger Balance in the "Remember The Math" calculation, the Average Float Balance is that part of the ledger balance that is not available (pending) to the bank for its use and thus not available to the account holder for their use.

In some explanations, Ledger Balance is the "Current Balance" from my example above.  Ledger is the total sum of all transactions posted to an account but Float are those transactions subtracted from Ledger to arrive at your Available Balance; which is balance #3 of the 14 in my Remember The Math series.

This is how I grasped the concept of Average Float Balance.

Happy Analyzing!

*Many financial institutions have varying titles for this balance.

What are Analyzed Charges?

From my experience, banks send service charges one of four ways: analyzed, hard, waived, or debited.  Usually, most bank services are sent as analyzed charges on an account analysis statement but what does this mean?

Analyzed means the charge for this bank service can be offset by any earnings allowance the account has earned for the period.

If your account's total analyzed charges for the month is $343.23 but your earnings allowance is $51.84 then that means you should owe the bank an amount of $343.23 less $51.84.

Analyzed Charges are sent on an account analysis statement as Service Charges - Balance Compensable.  All analyzed charges for one account during a particular time frame should be shown as this balance.  This balance is always a positive number but does not include any adjustments.  It is pre-adjustments, if applicable.

Why are Analyzed Charges important to know for Account Analysis?

First, most Treasurers' job responsibility is to lower costs namely those of bank fees.  If the cost of bank services at one bank makes the earnings allowance worth it since this earnings allowance can be applied towards total analyzed charges, then why would this charge NOT be important?

Since the Great Recession, we have seen Earned Credit Rates (ECR) plummet to barely anything worth mentioning.  Due to this lowered rate, balances kept in accounts are often not worth the charges incurred for the bank services.

Since the ECR determines the amount of earnings allowance which in turn determines how much money a company can save on their bank fees, this can help better estimate how much fees to incur per account to offset those fees against your estimated earnings allowance.

Why spend more than you have to??

Now, there are different suggestions to consider which can eliminate certain bank fees or even get you better rates for those bank services but that's another topic...and totally strategic.

Until then...Happy Analyzing!

Average NET Ledger Balance (1/14)

Account Analysis consists of balances and fees which comprise a basic math calculation. There are 14 balances that I refer to as "Remember the Math". I will discuss all 14 in 14 different posts.

Average NET Ledger Balance

The ledger balance is derived from Accounting. Here is where all debits and credits for an account are posted; to the ledger. This balance will include all debits and credits whether or not they have cleared the account (debit) or posted to the account (credit). In simple terms, a debit to an account is a subtraction of funds from the account while a credit to an account is an addition of funds to the account. 

The ledger balance is recorded per account on a daily basis.  At the end of a reporting period, the sum of those daily balances is computed and divided by the number of days in that period to arrive at the average.  That final balance, negative or positive, determines its net balance.

In some instances, there may be both an average positive ledger balance and an average negative ledger balance.  The Average POSITIVE Ledger Balance less Average NEGATIVE Ledger Balance is then the net balance of the ledger for that account.  And, in some instances, you will only see the Average NET Ledger Balance so no further computing is necessary.

Once both the Average POSITIVE Ledger Balance and the Average NEGATIVE Ledger Balance have been computed, you will arrive at the Average NET Ledger Balance as follows:

    Avg POSITIVE Ledger Balance

+  Avg NEGATIVE Ledger Balance

    Avg NET Ledger Balance            

This is usually the first balance you will see on your Account Analysis statement from your financial institution.  If you know how the bank arrives at this number, you have gained a better understanding of the balance itself and its relationship with Accounting.

Happy Analyzing! 

ANSI X12 EDI 822

For commercial domestic (US) account analysis, most companies receive what is called an ANSI X12 EDI 822 file from their financial institution(s).

What is ANSI X12?  ANSI stands for the American National Standards Institute.  X12 is a standard transaction set used mostly in North America.  Its format consists of loops, delimiters, and segment terminators.  Various sections of an ANSI X12 file have their own "label" such as the ISA/ISE, the GS/GE, or the ST/SE envelopes.  The "/" for each relationship indicates a header/trailer grouping. 

So, for an 822 file, the ISA envelope heads the file while the IEA envelope trails it.  The same goes for GS/GE and ST/SE.  I've had success keeping the headers and trailers straight by remembering the "E" trails; since ISE, GE, and SE all have the letter "E" while ISA, GS, and ST do not. 

Lastly, EDI means Electronic Data Interchange; an electronic format of what would otherwise be a paper statement. I like to highlight the first letter of each word in an acronym so I can visually see how the acronym came about. I've come across many an acronym where I've thought to myself, "Really?! That's the best you guys could come up with from this??"

The 822 is one of many transaction sets available but the only one used specifically for account analysis.

Commercial Account Analysis = ANSI X12 EDI 822.

An 822 file is usually delivered in a .txt, doc, .docx, or .822 format.  From my time in account analysis, I've only worked with two versions of the 822 file; the 3040 and the 4010.  There may be versions prior to the 3040 and there may be versions after the 4010.  I don't concern myself with it until it falls on my desk or in my inbox. 

In an 822 file, the company should receive information about their account balances, service charges, bank fees, adjustments/credits, rates, as well as any earned credit in the form of an earnings allowance.  Some of this information falls between the header/trailer envelopes and are preceded by account records. 

The segments denoting an account usually include the account name, account number, and account level.  Following an account segment, you should see charges and compensations for the balances of that particular account followed next by specific service activity information for this account.   Know that each new account segment begins an account record so the presence of the next account segment signifies the end of the previous record.

In addition to the company's breakdown of fees and charges, one can also find other information such as the date when the file was produced, the time period for which the data of the file relates, the bank's routing transit number (RTN), the bank's location, etc.  This information is usually found at the beginning of the file following the header/trailer envelopes.  If there is more than one bank RTN present in the 822 file, there should be a separate ISA/ISE envelope indicating that the first file has ended and a new file with data relating to a different RTN is beginning. 

Contrary to what it appears, there is an order to the data which can easily be seen by "unwrapping" the 822 file.  Most, but not all, EDI 822 files are delivered "wrapped" which means it consists of one continuous string of data that is not separated by any identifiable break point. However, if you "unwrap" an 822 file you can easily identify the header/trailer envelopes as well as the data itself.

To "unwrap" means to break up the one continuous string of data and place each individual segment at the start of its own line in the file. This allows you to read it from left to right in some kind of order. The steps I've learned to unwrap an 822 file are found using Microsoft Word. 

1. Ctrl A
2. Ctrl H
3. Type ^p in the Find what field, leave the Replace with field blank, and then select Replace All.
4. Type the file's segment terminator in the Find what field. Then, type the file's segment terminator and ^p (no space) into the Replace with field.  Select Replace All. 

Step 1: this highlights the entire document.

Step 2: this opens the "Find and Replace" feature in MS Word.

Step 3: for this step, leave the "Replace" field blank. After you select "Replace All"   you will get a pop-up window telling you the number of rows affected and if you want to continue the same for the entire document.

Step 4: the segment terminator literally terminators the segment. It's like a period in a regular everyday sentence; the end of a statement, thought, phrase, etc. Most segment terminators are "\" or "~". For untrained eyes, finding it is the issue.  So, for this step, your Replace with field may look like this: ~^p

Once complete, you should be able to read the 822 file from left to right per line. If you cannot, you did something wrong so try again.

Happy Analyzing!