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!