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Sectional and Self Balancing System

Sectional and Self Balancing System



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Published by: Bhupender Singh Kaushal on Apr 06, 2008
Copyright:Attribution Non-commercial


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Introduction:After the transactions, being recorded in the journal, are classified in the ledger. A smallenterprise normally has less number of accounts are therefore can maintain all theaccounts in one ledger alone. However, in case of a big enterprise, the number of accounts are large and, therefore, it becomes inconvenient to maintain all accounts intoone ledger alone. Hence in such a condition the ledger is sub-divided into the followingthree ledgers:
Trade Debtors / Customers / Sales / Sold Ledger:
This ledger contains thepersonal accounts of the Trade Debtors to whom credit sales are affected. Here TradeDebtors word stands for only those debtors to whom goods are sold.
Creditors / Suppliers / Purchase / Bought Ledger:
This ledger contains thepersonal accounts of the Trade Creditors who supply the goods on credit. Here TradeCreditors word stands for only those creditors to whom those goods are sold.
General Ledger / Nominal / Impersonal Ledger:
This ledger contains all nominalaccounts, real accounts and the remaining personal accounts other than trade debtor’saccounts and trade creditor’s accounts.Having sub-divided the ledger into the above categories the enterprise may record thetransactions either according to the Sectional Balancing or Self Balancing System.Need for sectional balancing system:Need for Sectional Balancing arises only for those transactions which involve TradeDebtors and Trade Creditors, which is explained by the help of the following problem:If in any transaction Trade Debtor is involved then one aspect of that transaction will berecorded in the Debtors Ledger and the other aspect will be recorded in the GeneralLedger. By this the double entry is not completed in either ledger and due to which TrialBalance can also not be prepared, because in any of the ledger double entry related totrade debtor is not completed.
Goods sold to Mr. X. The usual entry of this transaction will be:Now if this entry is posted in ledger then in DebtorsLedger debit aspect will be recorded and in theGeneral Ledger credit aspect will be recorded, due towhich Trial Balance cannot be prepared because toprepare the Trial Balance it is necessary to record both the aspect of any transaction inone ledger, which is not possible in this case. To overcome this problem a control accounts namely
Debtors Accoun
isopened in General Ledger to complete the double entry system. This system is knownas Sectional Balancing System because out of the three sections only in General Ledgerthe double entry system is completed and is balanced.
Scheme of entry:
We have seen that by the help of usual entry double entry systemcannot be completed in any of the ledgers. Therefore, instead of opening Trade Debtors1
XDr To Sales A/cD.L.G.L.
Personal Account, Total Debtors Account will be opened which will complete the doubleentry system in General Ledger.2
TransactionUsual EntrySectional BalancingEntry
Goods sold toMr. XxDr To Sales A/cD.L.G.L. Total Debtors A/cDr To Sales A/cG.L.G.L.
The accounts of individual trade debtors are posted without completing theprocess of double entry.
Checking the accuracy:
The accuracy of individual customer’s account can bechecked by comparing the total of their balance with balances of the Total DebtorsAccount in General Ledger. If the total of this schedule tallies with the balance of TotalDebtors Account appearing in General Ledger, the debtors’ ledger is treated ascorrectly posted.If in any transaction Trade Creditor is involved then one aspect of that transaction willbe recorded in the Creditors Ledger and the other aspect will be recorded in theGeneral Ledger. By this the double entry is not completed in either ledger and due towhich Trial Balance can also not be prepared, because in any of the ledger double entryrelated to trade creditors is not completed.
Items not to be recorded in Total Debtors Account:
Following are the items whichdo not affect total debtors accounts, hence, such items should not be taken intoaccount while preparing total debtors accounts:(i)Cash sales(ii)Provision for bad and doubtfuldebts(iii)Provision for discount on debtors(iv)Bad debts previously written off,now recovered(v)B /R discounted(vi)Trade discount(vii)Cash received from bills receivableon due dates
Format of Total Debtors Account:In General LedgerTotal Debtors Account

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