- Self Balancing Ledger Notes/ebook:
In previous post we have given Amalgamation, Absorption & Reconstruction Notes, Cash Flow Statement Latest Notes, Company Financial Statements Notes, and Download All Accounting Standards for CA, CWA & CS Exams. Today we are providing Self Balancing Ledger Latest Notes for CA , CMA, CS & for other Accounts students.
Self – Balancing System:
Under this system a group of transactions are recorded in one ledger. In a trading organization following ledgers are maintained:
(A) Sales Ledger or Debtors Ledger: In this ledger personal accounts of trade debtors are maintained When goods are sold on credit, personal accounts of customers are required to be maintained in the accounts books. These accounts will contain entries regarding Credit Sale, Sales return, Cash received, Bad Debts, Discount allowed etc. Debtors accounts other than trade debtors are not maintained in this ledger. These 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 creditors ledger. Personal accounts of creditors other than trade creditors such as creditors for loan, creditors for expenses etc. are not maintained in this ledger. These accounts are maintained in 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.
Self Balancing Ledger Notes/ebook:
Meaning of Self Balancing Ledger:
When a large number of debtors and creditors are there in a business, it is advantageous to maintain a separate sales ledger and bought ledger for smooth handling of the record-keeping & function as well as to facilitate division of work. Generally, three self- balancing ledgers are maintained in a large business, namely
1. Bought ledger
2. Sales ledger and
3. General ledger
In the bought ledger, a general ledger adjustment account is maintained to make it self-balancing. In the sales ledger also, a general ledger adjustment account is maintained to make it self-balancing. Lastly, in the general ledger, a bought ledger adjustment account and a sales ledger adjustment account are maintained which give summary of the bought ledger and sales ledger respect and make the general ledger self-balancing. In the bought ledger, individual creditors’ account are maintained. In the sales ledger, individual debtors’ accounts are maintained and in the general ledger, all other accounts including summary of the sales ledger and bought ledger are maintained
Importance and Basics of Self Balancing Ledger
Suppose, a big company has 10,000 customers. They buy from company, they pays their credit buying, they return goods and do many more transaction with our company. Just making one ledger is not enough to record all the transactions. So, different persons are appointed to maintain the accounts of customers. Like this, we also deal with our suppliers or creditors. These creditors may be 20000. We may have also other transactions with other parties. So, to record all transactions, we make three ledgers.
Debtors Ledger in Self Balancing Ledger Accounts
(A) Debtor Ledgers for recording all transactions of our customers.
In this ledgers, we have all customers account. For example
i) Ram account
ii) Sham account
iii) Sita account
iii) Gita account
iv) Sima account
v) Vinod account
so we have 10,000 name of customer accounts
in which debit side we showed opening balance of each account, credit sale and credit side we show cash received, discount allowed, bad debts and closing balance. But we did not keep sale account, cash account, discount account because all these accounts will keep in General Ledger. It means in Debtor ledger we just complete 50% of Double Entry System.
Now, in this ledger, we will open a account and its name is General Ledger Adjustment Account, this account will be just opposite of total debtors account for completing 50% of double entry system. Suppose we have counted that we have to take Rs. 1,00,000 from ram, sham, sita, gita and other 10,000 debtors. It means we already debit this account in each debtor account but in General ledger adjustment account, we credit by writing balance b/d with Rs. 100,000. Like this, we total credit sale, cash received and other other and will show opposite side of General Ledger account. Only after this, our ledger will become double entry system. In your text books, all individual debtors account are not shown. Due to this, you may be in confusion. Now, relax. Understand why we have made General Ledger Account just opposite of Total Debtors account in Debtors Ledger. By following entries, we records
For Credit sale,
Debtor ledger adjustment account Dr.
General Ledger adjustment account Cr.
For Cash received, bad debts, discount allowed
General ledger adjustment account Dr.
Debtor ledger adjustment account Cr.
Creditors Ledger in Self Balancing Ledger Accounts
(B) Creditor Ledgers for recording all transactions of our suppliers.
In creditors ledgers, we only maintain each and every creditor account like sohan account, mohan account, Rohan account, Vijay account and other our 20000 creditors account. We record their their opening balance, credit purchase in the credit side of individual creditor account and in the debit side, we show cash paid and closing balance payable to each creditor. But we do not make credit purchase account, cash account and other accounts related to each creditor account. So, these creditors accounts’ credit balance in trail balance show more and trail balance will not be matched. For matching, we open one more account in creditor ledger and its name is general ledger adjustment account.
For making General Ledger Adjustment account, we will pass following journal entries
For credit purchase
General Ledger Adjustment Account Dr.
Creditor ledger adjustment account Cr.
For cash paid to creditors, discount received
Creditor ledger Adjustment account Dr.
General Ledger Adjustment account Cr.
General Ledger in Self Balancing Ledger Accounts
(C) General Ledger for recording all transactions except relating to debtors or creditors.
General Ledger is made for recording and showing all the accounts except debtors and creditors account. Due to not showing debtors and creditor accounts in it, our General Ledger will not fulfill with double entry system. For completing it under double entry system, we will make two more account in it. One is debtor ledger adjustment account and other is creditor ledger adjustment account.