Definition of a Ledger in Bank Accounts
- A bank account ledger consists of a series of lines for individual account transactions. Each transaction includes the date, a brief description and the amount of the transaction, with an indication of whether it represents a credit or a debit. Credits include deposits, transfers from other accounts and interest payments from the bank, while debits include checks, cash withdrawals, transfers to other accounts and debit card purchases. The rightmost column includes a running account balance, which represents the funds in the account based on all past transactions.
- Bank account ledgers are available in several forms. A traditional register, which is a small booklet that some banks issue to new account holders, is a basic ledger. Bank account statements also take the form of ledgers, providing a list of debits and credits that an account holder can use to balance an account by comparing the statement to a personal ledger. Online banking offers another type of ledger in the form of a running account summary. Bank customers also can create their own ledgers on paper, using a template, or on a computer with software such as a spreadsheet program.
- Bank account holders can use their account ledgers for several purposes. The ledger provides an up-to-date account balance, which lets you know how much you have to spend or if you have reached a savings goal. Lenders also provide an historical record of your income and expenditures. This is useful for creating a budget or preparing your taxes when you need to know how much you spent on deductible, work-related items or what your annual food, utility and entertainment costs are. A ledger also is useful in the event that your bank makes an error, since your accounting will reveal the issue and give you a means of identifying fraudulent or erroneous transactions.
- Tracking your bank account using a ledger requires diligence. You must enter every transaction, including automatic bill payments and direct deposits that you don't initiate yourself, to have an accurate balance at all times. In addition, different types of ledgers will organize the same information differently. For example, your paper ledger will include transactions in the order you initiated them. However, an online account summary will show a ledger that lists transactions in the order that they posted to your account, which will be different due to processing delays.