SECTIONAL AND SELF BALANCING SYSTEM Introduction: After the transactions, being recorded in the journal, are classified in the ledger. A small enterprise normally has less number of accounts are therefore can maintain all the accounts 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 into one ledger alone. Hence in such a condition the ledger is sub-divided into the following three ledgers: Trade Debtors / Customers / Sales / Sold Ledger: This ledger contains the personal accounts of the Trade Debtors to whom credit sales are affected. Here Trade Debtors word stands for only those debtors to whom goods are sold. Creditors / Suppliers / Purchase / Bought Ledger: This ledger contains the personal accounts of the Trade Creditors who supply the goods on credit. Here Trade Creditors word stands for only those creditors to whom those goods are sold. General Ledger / Nominal / Impersonal Ledger: This ledger contains all nominal accounts, real accounts and the remaining personal accounts other than trade debtor’s accounts and trade creditor’s accounts. Having sub-divided the ledger into the above categories the enterprise may record the transactions 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 Trade Debtors 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 be recorded in the Debtors Ledger and the other aspect will be recorded in the General Ledger. By this the double entry is not completed in either ledger and due to which Trial Balance can also not be prepared, because in any of the ledger double entry related to trade debtor is not completed. Example: Goods sold to Mr. X. The usual entry of this transaction will be: X Dr D. Now if this entry is posted in ledger then in Debtors To Sales A/c L. Ledger debit aspect will be recorded and in the G. General Ledger credit aspect will be recorded, due to L. which Trial Balance cannot be prepared because to prepare the Trial Balance it is necessary to record both the aspect of any transaction in one ledger, which is not possible in this case. To overcome this problem a control accounts namely Total Debtors Account is opened in General Ledger to complete the double entry system. This system is known as Sectional Balancing System because out of the three sections only in General Ledger the double entry system is completed and is balanced.
Scheme of entry: We have seen that by the help of usual entry double entry system cannot be completed in any of the ledgers. Therefore, instead of opening Trade Debtors 1
Personal Account, Total Debtors Account will be opened which will complete the double entry system in General Ledger.
Transaction Goods sold to Mr. X x
Usual Entry Dr To Sales A/c D. L. G. L.
Sectional Balancing Entry Total Debtors A/c Dr To Sales A/c
G. L. G. L.
Note: The accounts of individual trade debtors are posted without completing the process of double entry. Checking the accuracy: The accuracy of individual customer’s account can be checked by comparing the total of their balance with balances of the Total Debtors Account in General Ledger. If the total of this schedule tallies with the balance of Total Debtors Account appearing in General Ledger, the debtors’ ledger is treated as correctly posted. If in any transaction Trade Creditor is involved then one aspect of that transaction will be recorded in the Creditors Ledger and the other aspect will be recorded in the General Ledger. By this the double entry is not completed in either ledger and due to which Trial Balance can also not be prepared, because in any of the ledger double entry related to trade creditors is not completed. Items not to be...