Book Balance

Book balance is a term used to describe funds on deposit after adjustments have been made for check clearing, float funds or reserve requirements. It is essentially the amount that is truly available for spending and is usually calculated as the bank balance less checks that have yet to clear, deposits in transit, or other deductions from the account. Book balance is the balance in the company's accounting ledger and can be used to reconcile the company's finances against the bank statement and bank balance at the end of the accounting period.

The book balance is the term companies use to describe the amount of money available to pay vendors and make purchases after any adjustments have been made for deposits in transit, checks that have not yet been cleared, reserve requirements and interest received from "float funds." Companies that have a lot of transactions or write a lot of checks increase the likelihood that the amount showing in their bank account, or bank balance, is not the actual amount of money they have available to spend. They may have a check outstanding that hasn't been deposited and cleared. By keeping track of a book balance, a company can keep accurate records of their available funds on hand for paying vendors and making purchases.

For example, Company ABC writes a check to Company XYZ. Until Company XYZ deposits that check and it clears ABC's account, ABC's bank balance will still appear as if those funds are available when in fact they have already been spoken for. The book balance will have recorded this transaction and will provide a more accurate record of available funds.

"Float funds" is a term used to describe interest received by banks because of the time lapse between the deposit and payment of checks. When a check is deposited in a bank, it does not get paid immediately. The time between the deposit and payment of the check serves as an opportunity for the paying bank to earn additional interest on the money.