Self balancing ledger

Need, types and advantages of Self balancing ledgers

1. Self-balancing ledger

2. Ledger A  ledger is the principal book for recording and totalling economic transactions measured in terms of a monetary unit of account by account type, with debits and credits in separate columns and a beginning monetary balance and ending monetary balance for each account.

3. Why Self-balancing ? In a big business organization the number of accounts are quite large. Therefore, instead of maintaining all the accounts in one ledger, these are maintained in different ledgers.

4. Self-balancing When a large number of debtors and creditors are there in a business, it is advantageous to maintain a separate ledgers for smooth handling of the record-keeping & function as well as to facilitate division of work.

5. Self-balancing system Generally, three self- balancing ledgers are maintained in a large business, namely Sales Ledger or Debtors Ledger : 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.

6. Purchase Ledger or Creditors Ledger: 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.

7. 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.

8. In the debtor ledger, a general ledger adjustment account is maintained to make it self-balancing. In the creditor ledger also, a general ledger adjustment account is maintained to make it self-balancing. Lastly, in the general ledger, a creditor ledger adjustment account and a debtor ledger adjustment account are maintained which give summary of the creditor ledger and debtor ledger respectively and make the general ledger self-balancing.

9. Advantages of self-balancing ledgers It is easy to locate mistake if ledgers are kept on self-balancing system. It is possible to ascertain the accuracy of posting of each ledger independently. Where it is not desired to reveal the content of the private ledger to the clerical staff the balances on this ledger can be incorporated in total in the trial balance.

10. It is instrumental in strengthening the internal check. The system is specially useful under the following two circumstances: When there is a large number of customers and suppliers, who can be classified on some basis regional basis or alphabetical basis, etc. When it is desired to prepare final statement of accounts periodically.

11. By Keerthana BBM II year