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Unit-14 Self-Balancing System

In this unit you will learn about both the self-balancing and the sectional balancing systems.

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What do you understand by Self-Balancing System? State its advantages. 

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Learning Pundits Content Team

Written on Apr 24, 2019 1:26:15 PM

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'. 

The main advantages of self-balancing system are as follows:

1.It is easy to locate the errors because we prepare separate Trial Balance for each ledger. If the Trial Balance of a particular ledger agrees, it implies that there are no errors in that. ledger. The detection work is confined only to the accounts in a ledger whose Trial .Balance does not agree. For-instance, if an error is committed in the personal account of a customer neither the General Ledger nor the Creditors Ledger is affected. It is only the Debtors Ledger which is affected and its Trial Balance will not agree. Hence you will look for the errors in Debtors Ledger only. Similarly, if the Trial Balance of General Ledger does not agree you will check entries in the nominal and real accounts only. This narrows down the area of detection work and the errors can be quickly detected:

2.The maintenance of ledgers can be divided amongst many persons. This helps in quick posting and fixation of responsibility in case of errors and frauds.  

3.The main ledger becomes less bulky because the personal accounts of customers and suppliers are excluded. The system is very useful when the number of customers and suppliers is 'large.

4.It is easy to check the accuracy of each ledger independently with the help of Adjustment Accounts.

5.It facilitates the preparation of interim accounts whenever required by including the figure of total debtors and total creditors. There is no need to go through the Debtors and Creditors Ledgers.