What does accounting balance mean and how does it differ from available balance? Here are the generalities and meaning of common bank balances for account transactions.
When we talk about accounting balance or available balance, we are referring to practical concepts that are very important for the daily management of current accounts. It is no coincidence that all account holders, even simply by looking at their home banking, come across these financial items in their personal area, which essentially certify the real economic assets on the account itself.
You have certainly happened to access your online current account and be first satisfied with the amount and then immediately disappointed. Or to believe that you have not received the transfer you have been waiting for a long time simply because the amount is not indicated in the accounting balance.
The amounts indicated by the two balances, in some cases, could coincide, but this should not lead us to believe that they are the same concept. On the contrary, both the accounting and the available operate differently, which makes it essential - in order not to make trivial errors of evaluation - to know the logic around which they revolve.
Here’s what accounting balance and available balance mean, what the differences are, and how to distinguish them when checking the status of your finances.
What is accounting balance and what does it mean
The accounting balance represents the sum of all transactions recorded on a current account up to a certain date. This includes both incoming and outgoing transactions, regardless of whether they have actually been settled or not.
In other words, the accounting balance is the result of all transactions that have been accounted for, or officially recorded, in the bank’s system. It is the difference between the flows recorded as credit and those as debit detected at a specific moment.
The accounting balance differs from other types of balance because it reflects exactly the amount of money present in the account based on the movements recorded, without taking into account the transactions still pending. For example, if you have made a payment by credit card or issued a check, these transactions will be visible in the accounting balance only when they are actually processed and accounted for by the bank.
However, it may happen that a current account holder - accessing their personal area - sees an out-of-date liquidity status, which does not correspond to the real value of their finances. This is because the accounting balance requires a time that can even reach 24 hours to reach the level of the available balance. Provided, of course, that no further transactions are completed in that period of time.
The accounting balance also includes the "items to expire" - or also called "postergate" - i.e. those accounting entries that refer to transactions with a value date subsequent to the closing of the current account.
What does available balance mean? And the liquid balance (or by currency)?
The available balance, on the other hand, measures the liquidity that is actually available to the current account holder. That is, counts those transactions that have already been made but not accounted for.
The available balance takes into account pending transactions that have not yet been accounted for, such as credit card payments that have not yet been processed, checks issued but not yet cashed, or incoming bank transfers.
For this reason, the available balance may differ – sometimes significantly – from the amount indicated by the accounting one.
Therefore, when you view your bank statement - or check the amount credited to your online checking account - you need to refer to the available balance, since it is the only item that is updated in real time with all transactions, both incoming and outgoing.
Some account holders may also have heard of the liquid balance, also known as balance by currency, which is another type of balance that reflects the availability of funds actually liquidated and ready for immediate use.
This balance excludes not only pending transactions but also those already booked but with a future value. The "value" in this context refers to the actual date on which a transaction is considered concluded from the point of view of the availability of funds.
For example, a bank transfer may be booked today, but the value, or the date on which the money will actually be available for withdrawal, could be tomorrow or in the following days. The liquid balance therefore shows the amount of money actually available at that precise moment, without having to wait for the future value of transactions already booked.
Difference between accounting balance and available balance
The accounting balance is important because it provides an accurate and up-to-date view of the financial resources available in the account at a given moment. It is used to:
- control personal finances;
- verify the accuracy of recorded transactions;
- plan future expenses.
In addition, the accounting balance is crucial for banks and financial institutions to monitor account activity and prevent possible fraud.
But, as we have seen, therefore, the main difference between accounting balance and available balance is that the former includes the transactions recorded on a specific current account and that can be viewed in the list of movements, while the latter measures the actual liquidity available to the account holder.
In fact, therefore, the difference between accounting balance and available balance is only in the time of updating the amount, since for the latter it occurs in real time.
This reflection then helps us to introduce a further distinction, that is, between accounting date and available date. Here too, the difference is rather basic: while the former coincides with the day on which a transaction is actually recorded, the latter indicates the day from which certain sums can be used to make payments or withdrawals.
Original article published on Money.it Italy. Original title: Cosa significa saldo contabile e differenze con il disponibile
