Chapter Iv Self Balancing Ledgers

Introduction

CHAPTER IV SELF BALANCING LEDGERS

You have learnt that all business transactions are recorded first in journal or its sub-division and

then posted into the concerned accounts in the ledger. A statement called Trial Balance is also

prepared at the end of the accounting period primarily to check the arithmetical accuracy of the

entries in the ledger, Normally the firms maintain one ledger for all the accounts involved. So

long as the volume of transactions is small and the number of accounts is limited, this works

fairly well. But, as the business expands and the number of accounts increases, especially those

of the debtors and creditors, maintaining all accounts in a single ledger becomes impractical. The

ledger becomes too bulky and location of errors involves more time. Hence many firms decide to

introduce multiple ledger system whereby separate ledgers are kept for debtors and creditors and

the entries are recorded in each ledger in such a way that a separate Trial Balance can be

prepared for each ledger. This is called 'Self-balancing System'. Sometimes the firms, while

maintaining more than one ledger, do not adopt the self-balancing system. In such a situation,

though separate Trial Balance cannot be prepared for each ledger but the arithmetical accuracy

can be duly certified by preparing certain control accounts. This is called 'Sectional Balancing'.

In this unit you will learn about both the self-balancing and the sectional balancing systems:

Meaning of Self Balancing Ledger Self-balancing system is a system whereby separate Trial Balance can be taken out from each ledger. ... It is the reverse of the Total Debtors Account in Sales Ledger and Total Creditors Account in Bought Ledger. Under this system ledgers are made self-balancing by opening adjustment accounts

Advantages of Self Balancing System:
 Localizes the errors and facilitates in quick detection with minimum efforts;  Facilitates division of work amongst different accounting staffs in the Accounts
department;  Responsibility for committing errors can be fixed;

 Possibility of collusion is lessen as the ledgers are maintained by different accounts staff;  Facilitates the preparation of interim accounts and draft final accounts
Steps to introduce the system The first step is that the ledger should be spilt up into certain number of ledgers as shown under:
1. Debtors Ledger: This ledger should contain the accounts only trade debtors (customers). 2. Creditors Ledger: This ledger should contain the accounts only trade creditors
(suppliers) 3. General Ledger: This ledger should contain all the remaining accounts i.e other than
trade debtors and trade creditors The second step is that in each of the above ledgers the extra adjustment account or accounts should be opened as mentioned below: 1. General Ledger Adjustment account: This extra account should be opened in the
“Debtors ledger” in addition to the usual accounts of all the debtors. 2. General Ledger Adjustment account: This extra account should be opened in the
“Creditors ledger” in addition to the usual accounts of all the debtors. 3. Debtors Ledger Adjustment account: This extra account should be opened in the
“General ledger” in addition to the usual other accounts. 4. Creditors Ledger Adjustment account: This extra account should be opened in the
“General ledger” in addition to the usual other accounts. Different names of ledgers
1. General ledger is also called as nominal ledger 2. Debtors ledger is also called as sales ledger, sold ledger or customer ledger 3. Creditors ledger is also called as purchases ledger, bought ledger or supplier ledger

Format of Self Balancing Ledger

In General Ledger

Debtors Ledger Adjustment Account

Date

Particulars

To Balance b/d

(opening debit balance )

Amount Date

Particulars

x

By Balance b/d (if any)

(opening credit balance)

To General Ledger Adjustment

account

Credit sales

x

Carriage and sundry charges debited

x

to customers

Bills receivable dishonored

x

By General Ledger Adjustment account Cash or cheques received from debtors Bad debts
Return inwards

Cheques received dishonored

x

Discount allowed

Interest ad charges

x

Other allowances

Cash paid to customers

x

Bills receivable

B/R discounted dishonored

x

Transfers

B/R endorsed dishonored

x

By bal c/d

Interest charged on overdue accounts

x

To Bal c/d

x

Total

xxx

Total

Amount
x
x x
x x x x x x x
xxx

The following transactions are to be excluded while preparing self balancing ledger 1.Cash sales 2. Provision for bad debts 3. Recovery of bad and doubtful debts 4. Trade discount 5. Bills receivable discounted or matured 6. Freight on purchase 7.Carriage inward 8.provision for discount on debtors

In General Ledger

Creditors Ledger Adjustment Account

Date

Particulars

To Balance b/d (if any)

(opening debit balance)

Amount
x

Date

Particulars By Balance b/d
(opening credit balance)

Amount
x

To General Ledger Adjustment

account

Cash paid to creditors

X

Bills payable accepted Discount X

received

Return outwards

x

Bills receivable endorsed to x

creditors

Transfers

x

To bal c/d

x

By General Ledger

Adjustment account

Credit purchases

x

B/P dishonored

x

Bills receivable endorsed to x
creditors dishonored

interest and charges

x

By bal c/d

x

Total

xxx

Total

xxx

The following transactions are to be excluded while preparing self balancing ledger

1. Cash purchases

2. provision for discount on creditors

3. Bills payable matured

In Debtors Ledger

General Ledger Adjustment Account

Date

Particulars To Balance b/d (if any)
(opening credit balance)

Amount x

Date

Particulars By Balance b/d
(opening debit balance )

Amount x

To Debtors Ledger Adjustment

account

Cash or cheques received from

x

debtors

Bad debts

x

Return inwards

x

Discount allowed

x

Other allowances

x

Bills receivable

x

Transfers

x

To bal c/d

x

x

Total

xx

By Debtors Ledger Adjustment

account

Credit sales

x

Carriage and sundry charges

x

debited to customers

Bills receivable dishonored

x

Cheques received dishonored

x

Interest ad charges

x

Cash paid to customers

x

B/R discounted dishonored

x

B/R endorsed dishonored

x

Interest charged on overdue

x

accounts

By bal c/d

x

Total

xx

In Creditors Ledger General Ledger Adjustment Account

Date

Particulars To Balance b/d
(opening credit balance) To Creditors Ledger Adjustment account Credit purchases B/P dishonored
Bills receivable endorsed to creditors dishonored interest and charges
To bal c/d
Total

Amount x
x x x x x xxx

Date

Particulars By Balance b/d (if any)
(opening debit balance) By crediotrs Ledger Adjustment account Cash paid to creditors Bills payable accepted Discount received Return outwards
Bills receivable endorsed to creditors Transfers By bal c/d Total

Amount x
X X x x x x xxx

Five marks questions

Question1. From the following transactions prepare the necessary ledger adjustment accounts in

the respective ledgers as on 31/12/2002

Balance of debtors on 1/1/02 (Dr)

Rs.30000

Balance of debtors on 1/1/02 (Cr)

Rs. 1500

Credit sales

Rs.75000

Cash received from customers

Rs 40000

Cash sales

Rs 35000

Discount allowed

Rs.2500

Bills receivable received

Rs.35000

Bad debts written off

Rs. 750

Return from debtors

Rs.3000

B/R dishonored

Rs. 1250

Bad debts previously written off now recovered Rs 1000

Transfer from creditor ledger

Rs.3000

Bills receivable discounted

Rs.3000

Provision for doubtful debts

Rs,2000

Balance of debtors on 31/12/02 (Cr)

Rs.1000

SOLUTION

In General Ledger

Debtors Ledger Adjustment Account

Date 1/1/02

Particulars To Balance b/d (opening debit balance )

Amount Date 30000 1//1/02

Particulars By Balance b/d
(opening credit balance)

Amount 1500

31/12/02 31/12/02

To General Ledger Adjustment account Credit sales B/R dishonored To bal c/d

1/1/03 To bal b/d Note : closing balance has to be

75000 1250 1000
107,250 31500 taken in opposite

31/12/02 31/12/02

By General Ledger Adjustment account Cash received from debtors Discount allowed B/R received Return from debtors Bad debts Transfers By bal c/d (balancing figure)

1/1/03 By bal b/d side( if they given as debt we should take

40000 2500 25000 3000 750 3000 31500 107,250 1000 under credit side

vice versa )

In Debtors Ledger General Ledger Adjustment Account

Date 1//1/02 31/12/02
31/12/02

Particulars To Balance b/d
(opening credit balance)
To debtors Ledger Adjustment account Cash received from debtors Discount allowed B/R received Return from debtors Bad debts Transfers To bal c/d (balancing figure)

1/1/03 To bal b/d

Amount 1500
40000 2500 25000 3000 750 3000 31500 107,250 1000

Date 1/1/02 31/12/02 31/12/02
1/1/03

Particulars By Balance b/d
(opening debit balance ) By debtors Ledger Adjustment account Credit sales B/R dishonored By bal c/d
By bal b/d

Amount 30000
75000 1250 1000
107,250 31500

Question. 2

From the following transactions prepare debtor ledger adjustment accounts in general ledgers

as on 31/12/2013.

Balance of debtors on 1/1/13 (Dr)

Rs.20000

Balance of debtors on 1/1/13 (Cr)

Rs.1000

Credit sales

Rs.50000

Cash sales

Rs 15000

Cash received from debtors

Rs 25000

Discount allowed

Rs.1500

Bills receivable received

Rs.15000

Bad debts written off

Rs. 250

B/R dishonored

Rs. 500

Return from debtors

Rs.2000

Provision for doubtful debts

Rs,3000

Balance of debtors on 31/12/13(Cr)

Rs. 750

Solution

In General Ledger

Debtors Ledger Adjustment Account

Date 1//1/13 31/12/13
31/12/13

Particulars To Balance b/d
(opening debit balance)
To General Ledger Adjustment account Credit sales
B/R dishonored To bal c/d

1/1/14 To bal b/d

Amount 20000
50000 500 750
71250 26500

Date 1/1/13 31/12/13
31/12/13
1/1/14

Particulars By Balance b/d
(opening credit balance ) By General Ledger Adjustment account Cash received from debtors Discount allowed B/R received Bad debts Return from debtors By bal c/d (balancing figure)
By bal b/d

Amount 1000
25000 1500 15000 250 2000 26500 71250 750

Question 3. From the following prepare the debtors ledger adjustment account under self

balancing system in general ledger

Balance of debtors on 1/1/18 (Dr)

Rs.40000

Balance of debtors on 1/1/18 (Cr)

Rs.2000

Credit sales

Rs.200000

Cash received from debtors

Rs 160000

Discount allowed

Rs.6000

Return inwards

Rs.4000

Bad debts written off

Rs. 3000

Bills receivable received

Rs.20000

B/R dishonored

Rs. 2000

Provision for bad debts

Rs,2000

Transfer from creditors ledger to debtors ledger Rs.2200

Closing credit balance of debtors

Rs.6000.

Solution

In General Ledger Debtors Ledger Adjustment Account

Date 1//1/18 31/12/18
31/12/18

Particulars To Balance b/d
(opening debit balance)
To General Ledger Adjustment account Credit sales
B/R dishonored To bal c/d

1/1/19 To bal b/d

Amount 40000
200000 2000 6000
248000 50800

Date 1/1/18 31/12/18
31/12/18
1/1/19

Particulars By Balance b/d
(opening credit balance ) By General Ledger Adjustment account Cash received from debtors Discount allowed B/R received Bad debts Return inwards transfer By bal c/d (balancing figure)
By bal b/d

Amount 2000
160000 6000 20000 3000 4000 2200 50800 248000 6000

Question4. From the following prepare the creditors ledger adjustment account under self balancing system in general ledger Debit balance of creditors (1-1-2014) Rs.1000 Credit balance of creditors (1-1-2014) Rs.10000 Credit purchase Rs. 40000 Cash purchase Rs. 20000 Cash paid to creditors Rs 35000 Discount received Rs. 2000 Bills payable issued Rs. 3000 Bills payable dishonored Rs. 1000 Debit balance of creditors (31-1-2014) Rs. 2000 Solution

General Ledger

Creditors Ledger Adjustment Account

Date 1-1-14

Particulars To Balance b/d (if any)
(opening debit balance)

Amount Date 1000 1-1-14

Particulars By Balance b/d
(opening credit balance)

31-1-14

To General Ledger Adjustment account Cash paid to creditors

35000

31-1-14

By General Ledger Adjustment account Credit purchases

Bills payable issued

3000

B/P dishonored

Discount earned

2000

By bal c/d

To bal c/d (balancing figure)

12000

ToTal

53000

ToTal

1-1-15 To bal c/d

2000

1-1-15 By bal c/d

The following transaction are to be excluded while preparing self balancing ledger

1. Cash purchases

Amount 10000
40000 1000 2000
53000 12000

Question 5 From the following prepare the creditors ledger adjustment account

balancing system in general ledger

Creditors balances on 1-1—1995 (Cr) Rs 30000

Creditors balances on 1-1—1995 (Dr) Rs 600

Total purchase Rs. 255000

Cash purchase Rs 75000

Return outwards Rs 3500

Cash paid to creditors Rs 45500

Cheques issued to creditors Rs 100000

Discount received Rs. 3000

Goods received as samples Rs.1000

Bills payable issued to creditors Rs 25000

Bills payable unpaid Rs. 1500

Noting charges due on the above unpaid bills Rs 200

Excess cash refunded by creditors Rs 300

Bills payable discounted by creditors Rs 10000

Creditors balance on 31-3 1995 (Dr) Rs 400.

Solution

General Ledger

Creditors Ledger Adjustment Account

Date 1-1-95

Particulars To Balance b/d (if any)
(opening debit balance)

Amount Date 600 1-1-95

Particulars By Balance b/d
(opening credit balance)

31-395

To General Ledger Adjustment account Cash paid to creditors

Cheques issued to creditors

45500 100000

31-3-95

By General Ledger

Adjustment account

Credit purchases Total

purchase

–cash

purchase)(255000-75000_

Noting charges due

Bills payable issued

25000

B/P unpaid (dishonored)

Discount received

3000

Return outwards

3500

Excess cash refunded to creditors

31-3- To bal c/d (balancing figure) 95

34800 31-3-95 By bal c/d

under self
Amount 30000
180000 200 1500 300 400

ToTal

212400 ToTal

1-4- To bal c/d

400

1-4-95 By bal c/d

95

The following transaction are to be excluded while preparing self balancing ledger

1. Cash purchases

2. Bills payable discounted by creditors

3. Goods received as samples

212400 34800