SELF BALANCING OF LEDGERS

In a big business organization the numbers of accounts are quite large. Therefore, instead of

maintaining all the accounts in one ledger, these are maintained in different ledgers. These

accounts are maintained by Self-Balancing System

SELF-BALANCING SYSTEM:- Self -Balancing Ledger System is a system of ledger- keeping which

classifies ledger as per nature of transactions, i.e. sales ledger, bought ledger, general ledger,

and also makes them to balance independently.

Since in the Sales Ledger or in the Bought Ledgers double entry is not complete, a separate trial

balance cannot be prepared. If these ledgers are maintained in such a way as to offer

separate trial balances, the system would be known as 'Self-balancing'.

 In such a case, a 'General Ledger Adjustment Account' is prepared in each of the

subsidiary ledger i.e. in Sales ledger and in Bought Ledger.

 In the General Ledger, Bought Ledger Adjustment Account (i.e. Total Creditors Account)

and Sales Ledger Adjustment Account (i.e. Total Debtors Account) are maintained which

give summary of the sales ledger and bought ledger..

Under this system a group of transactions are recorded in one ledger. In a trading organisation

following ledgers are maintained:

(A) Sales Ledger or Debtors Ledger: In this ledger personal account of trade-debtors are

maintained. These accounts will contain entries regarding Credit Sale, Sales Return, Cash

received, Bad Debts, Discount allowed etc. Debtor’s accounts other than trade debtors are

maintained in General Ledger.

B) Purchase Ledger or Creditors Ledger: In this ledger personal accounts of trade creditors are

maintained. In a business organisation when goods are purchased on credit, personal accounts

of suppliers of material or goods are required to be maintained. These accounts contain credit

purchase, purchase return, cash paid, discount received. Such personal accounts are

maintained in creditor’s ledger. Personal accounts of creditors other than trade creditors such

as creditors for loan, creditors for expenses etc. am maintain in the General ledger.

(C) General Ledger:-- This ledger contains all accounts other than personal accounts of

trade debtors and trade Creditors which are maintained in debtors ledger and creditors ledger

respectively. General Ledger contains real accounts, nominal accounts and non-trading

personal accounts. Each time an entry is made in the Bought and Sales Ledger, Self-balancing

the contra effect of the entries is in Bought Ledger or Sales Ledger Adjustment A/c set up in

the general ledger.

Advantage of Self-Balancing System:

1) Easy location of errors:—If there is any error in any particulars ledger, account related to

that ledger only will be checked therefore, it is easier to locate the error.

2) Division of work:—Under this method various accounts are maintained in three different

ledgers, therefore, accounting work can be divided among various employees.

3) Information of debtors and creditors balances:—Debtors Ledger Adjustment Account and

Creditors Ledger Adjustment Account in General Ledger contain details of transaction related to

Debtors and Creditors respectively. Therefore, balances of these accounts are equal to the total

of Debtors and Creditors. This is very useful information for the management.

4) Internal Control:—Under this method, with the help of Adjustment Accounts maintained in

different Ledgers, internal accounting control can be maintained. Therefore, chances of

mistakes and fraud are reduced.

5) Fixation of responsibility:—Under this system various ledgers are maintained by different

employees. Therefore, in case of mistake or fraud responsibility can be easily fixed. 6) Early

Preparation of Final Accounts:—From the trial balance drawn from General Ledger final

accounts can be easily drawn.

Some Important Items.

(i) Recovery of bad debts: If bad debts previously written off are recovered, this will not affect

Adjustment Accounts for recovery of bad debts , following journal entry is made

Cash A/c Dr.

To bad Debts recovered A/c

Cash Accounts and Bad debts recovered account both will appear in General Ledger. Therefore,

Adjustment Accounts will not be affected.

(ii) B/R discounted with Bank:- This will also not affect Adjustment Accounts, because debit

and credit aspects of this transaction will appear in General Ledger.

(iii) Endorsement of B/R to creditor:—Following journal entry is made for this transaction,

Creditor Dr.

To Bills Receivable Account

Bought / Creditors Ledger Adjustment A/c (in General ledger) Dr.

To General Ledger Adjustment A/c (in Bought ledger)

(iv) Dishonour of Endorsed B/R : Following entry is made for above transaction.

Debtors A/c Dr.

To Creditors A/c

Above entry will affect both personal ledgers (Debtors and Creditors Ledger). Therefore, all the

four Adjustment Accounts will be affected. Following entries will be made in

Adjustment Accounts:——

Sales Ledger Adjustment Ac (in general Ledger) Dr.

To General Ledger Adjustment A/c (in Sales Ledger)

General Ledger Adjustment A/c (in Bought / Creditors Ledger) Dr.

To Bought /Creditors Ledger Adjustment A/c

(v) Provision for Bad and doubtful debts:- This will not affect Adjustment Accounts, In case

balance of sundry debtors has been given at net amount after deducting provision for

bad and doubtful debts, amount of debtors should be shown at gross value in Adjustment

Accounts.

SUB-DIVISION OF SALES LEDGER AND PURCHASE LEDGER

If number of Debtors and creditors is large, more than one Sales Ledger and Purchase Ledger

may be maintained. This sub-division of Ledger can be made on the following basis.

(i) On the Basis of Alphabets:-- For example, account of customers whose names start with the

alphabets A to K may be maintained in one Ledger, from L to R in the second Ledger and

from S to Z in the third Ledger. If more that one Sales Ledger is maintained, separate

adjustment accounts will also be maintained in the General Ledger.

(ii) On the Basis of Area:— Considering the number of customers and creditors ledger can be

divided on the basis of area, state, Big state, small State e.t.c.

RECTIFICATION OF ERRORS

(i) Self-balancing system:- Under self-balancing system to rectify the error normal entry of

rectification will be made. Then it will be seen whether adjustment accounts are affected. If

error has affected adjustment account also, these will also be rectified. If due to any error

only personal account is affected, there will be no effect on adjustment accounts.