Quick answer: In a large business the ledger is split into a debtors (sales) ledger, a creditors (purchase) ledger and a general ledger. Under sectional balancing, only the general ledger balances independently, using total debtors and total creditors accounts. Under self-balancing, every ledger balances on its own through adjustment accounts, so any error is traced to one ledger immediately.
| Item | Meaning |
|---|---|
| Debtors ledger | Accounts of credit customers |
| Creditors ledger | Accounts of credit suppliers |
| General ledger | All other real, nominal and personal accounts |
| Sectional vs self-balancing | Only the general ledger balances vs every ledger balances |
In Big businesses, one ledger is not enough to record all transactions, and if the trial balance does not agree, finding the error is slow. Under the self-balancing and sectional balancing system books can easily be checked and errors can be located and rectified because the number of accounts in the ledger is less.
When business growth and a large number of transactions take place.
Self-Balancing and Sectional Balancing System – Explained
In a large business, the maximum increases take place in trade debtors and trade creditors as the accounts of debtors and creditors are separated from other accounts.
So, the location of errors by checking each and every account will become very easy. and will save time in a large business the Sectional and Self-balancing ledgers are subdivided into the following ledgers:
- Sales ledger or debtors ledger.
- Purchase ledger or creditors ledger.
- General ledger.
1. Sales Ledger or Debtors ledger
Sales Ledger contains the accounts of trade debtors to whom goods have been sold on credit, with which the firm deals.
2. Purchase Ledger or Creditors ledger
The Purchase ledger contains the accounts of trade creditors from whom goods have been purchased on credit, with which the firm deals.
3. General Ledger
The general ledger contains all Real accounts, Nominal accounts, and Personal accounts except those of trade debtors and creditors. you can also check examples of the General ledger.
Therefore, the trial balance will be prepared by abstracting balances from all three ledgers.
So a trial balance prepared from any single ledger will not balance because in general ledger accounts of debtors and creditors are not included.
If the trial balance is taken from the debtor’s ledger. It has only debit balances and there is no credit balance.
In the same way, if the trial balance is taken from the creditor’s ledger, it is only credit balances and there is no Debit balance.
Therefore, if any mistake is committed in Ledger posting this system neither indicated the nature of the mistake know it enabled one to determine which ledger is affected.
Finding the error would then mean checking all three ledgers.
Thus, it is desirable to adopt a system by means of which each ledger can be balanced independently of the other ledgers.
So, errors are localized and delay in balancing(Sectional and Self-balancing ledgers) is minimized. To achieve this two methods are used:
Sectional Balancing vs Self-Balancing
Sectional balancing: only the general ledger is made to balance on its own. A Total Debtors Account and a Total Creditors Account are kept in the general ledger (outside the double-entry, as memoranda), so the general ledger trial balance agrees independently, and the debtors and creditors ledgers are checked against those totals.
Self-balancing: every ledger balances on its own. The debtors and creditors ledgers each carry a General Ledger Adjustment Account, and the general ledger carries a Debtors Ledger Adjustment Account and a Creditors Ledger Adjustment Account. Any error is therefore traced to one ledger straight away. See how to rectify errors in self-balancing ledgers for worked examples.
These types of books’ self-balancing and sectional balancing systems are helpful for managing the accountings for large businesses.