The document discusses self-balancing ledgers. Under a self-balancing system, separate trial balances can be prepared for individual ledgers like the debtors ledger and creditors ledger. This is done by opening adjustment accounts that allow entries to balance between the individual ledgers and the general ledger. The system localizes errors, facilitates division of work, and allows for interim accounts to be prepared. The document outlines the steps to implement a self-balancing system including splitting the ledger and opening adjustment accounts between ledgers.

1. SELF BALANCING LEDGER
LAKSHMI S

2. I. SELF BALANCING 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'.

3. CONT…
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 Purchase Ledger. Under this system
ledgers are made self-balancing by opening
adjustment accounts.

4. II. ADVANTAGES
 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

5. III. STEPS
The first step is that the ledger should be spilt up into certain
number of ledgers.
 Debtors ledger
 Creditors ledger
 General ledger
The second step is that in each of the above ledgers the extra
adjustment account or accounts should be opened
General ledger adjustment a/c for debtors a/c
General ledger adjustment a/c for creditors a/c
Debtors ledger adjustment a/c for general ledger a/c
Creditors ledger adjustment a/c for general ledger a/c

6. IV. FORMAT FOR GENERAL LEDGER

7. FORMAT FOR GENERAL LEDGER

8. FORMAT FOR DEBTORS LEDGER

9. FORMAT FOR CREDITORS LEDGER

10. THE FOLLOWING TRANSACTIONS ARE TO BE EXCLUDED
WHILE PREPARING SELF BALANCING LEDGER
 1.Cash sales/ purchases
 2. Provision for bad debts
 3. Recovery of bad and doubtful debts
 4. Trade discount
 5. Bills receivable/ payable discounted or matured
 6. Freight on purchase
 7.Carriage inward
 8.provision for discount on debtors/ creditors

11. PROBLEM

12. SOLUTION

14. V. RECTIFICATION OF ERRORS
RECTIFICATION OF ERRORS BEFORE OPENING
SUSPENSE ACCOUNT
If the error affects the accounts of debtors or
creditors without affecting their total, it is rectified by adjusting
the accounts itself. If it affects the total of accounts, the
additional entries are to be made in the main ledger through
total debtors/ creditors accounts.
For example, if goods sold to “X” are recorded in the debtors ledger
and sales a/c is properly credited at the end of the period, but
omitted to debit the total debtors a/c. the error can be rectified
by writing in debit side of total debtors a/c. “To error in omitting
to record sales”

15. CONT…
The rectification of errors will be done in the usual manner
as in single ledger system but there is one difference in that is,
whenever the total of debtors or creditors are affected,
rectification will be done by making additional self balancing
entries.
For example, If goods sold to “X” are not recorded in the sales
book. It means under reporting of sales.
The rectification of error will be made by crediting sales account
and additional entry of self balancing with the same amount will
be made, as
Debtors ledger adjustment A/c Dr (main ledger)
To General ledger adjustment A/c ( Drs ledger)

16. CONT…
RECTIFICATION OF ERRORS AFTER OPENING SUSPENSE
ACCOUNT
The method of rectification will be same under self balancing
system, with the exception that the entries which were corrected
unilaterally will be corrected through suspense a/c.
For example, If goods sold to “X” are not recorded in the sales book. It
means under reporting of sales.
a) main ledger
Debtors ledger adjustment a/c Dr
To Suspense a/c
b) debtors ledger
Suspense a/c Dr
To General ledger adjustment a/c

17. VI. RULING OF SUBSIDIARY BOOKS
Whenever there are several Purchase, Sales
ledger in use various books of original entry are
suitably ruled in a manner that they readily show the
monthly total of the transactions posted in various
ledgers, on the basis of which the self balancing
entries.

18. VII. SECRET ACCOUNT
At time it may be necessarily to keep the operation of
certain accounts, secret from staff except the senior officials.
In such a case, these accounts would be segregated into a
private ledger and posting will be made in the ledger by a
confidential clerk, under the direct supervision of chief
accountant.
In this way, though the individual entries in the accounts
kept in private ledger will be revealed to the accounting staff,
their total effect will be kept secret.
In case individual accounts also are desired to be kept
secret separate cash book and bank account would be maintained,
this would ensure complete secrecy.

19. CONT…
When such a system is first started, the assets and other
debit balances are transferred to the private ledger by crediting
the respective accounts in general ledger and private ledger
adjustment a/c is debited with their total. The opposite are the
entries made when credit balances are transferred
Also, if it is desired to transfer a part of a bank balance to
private bank account, bank account is credited and the private
ledger adjustment account is debited.
From the private bank account, partners will be able to draw
amount required by them and to pay interest on deposits and loans
at whatever rates they may please without the fact being
disclosed to the staff

20. CONT…
When account are closed at the end of the year, the revenue
accounts are closed off by transfer of private ledger adjustment
account and corresponding entries are made in the private ledger
by debit or credit to the general ledger adjustment account.
Afterwards, all the balances so transferred, along with those
already in private ledger, are transferred to the profit & loss
account in the private ledger.
In this way, complete secrecy is maintained regarding the
operation of accounts in the private ledger, also the amount of
profit made by the concern is not disclosed to the staff.

21. SECTIONAL BALANCING LEDGER
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'.