In the sectional balancing system, only a section of the group of ledgers is self-balanced. Under the system, the only general ledger is made to balance.
Sectional balancing systems are very useful for big giant firms for managing their accounts.
Sectional Balancing System with Examples
This is done by inserting two additional accounts in the general ledger:
- Total Debtors account or Sales Ledger Adjustment Account.
- Total Creditors account or Purchase Ledger Adjustment Account.
These accounts are posted in totals, Whereas the individual Accounts of Customers and Suppliers are posted with their relative transactions in the sales ledger and purchase ledger respectively.
Generally, These total accounts are used to check the correctness of the posting of the individual accounts of the two ledgers.
Thus, the balance of total debtors’ accounts on any date should always be equal to the total of the individual balance of customers’ accounts for the sales ledger on the date.
Similarly, The balance of the total Debtor’s Account should always be Equal to the total of the individual balances of suppliers’ accounts of the Purchase Ledger.
So, if this is so the sales and purchase ledgers can be taken correctly.
Thus, in this system, the trial balance is prepared from the General ledger only because double entry is complete in this Ledger.
Total Debtors account / Sales Ledger Adjustment Account
Total debtors account and total creditors account are prepared with the help of journals under the Sectional Balancing System some additional columns are down in journals(subsidiary books).
So, the analysis of each entry Pertaining to the specific ledger is also given in the analysis Column.
Thus, under the sectional balancing system the Performa/Template of Total Debtors Account and journals or subsidiary books will be as follows:
The Following Items will not appear in the total Debtors account:
- Cash sales.
- Bad debts recovered.
- Provision for discount on debtors.
- Bill Receivable with the bank.
- Provision for bad and doubtful Debt.
- Bill receivables are discounted with the bank.
- Bill receivable endorsed by creditors.
- The credit sale of assets.
- Bills receivable encashed on maturity.
Total Creditors Account or Purchase Ledger Adjustment Account
Under the sectional balancing system, the Performa/Template of total creditors account and journals or subsidiary books will be as follows:
The following items will not appear in the total creditor’s account:
- Cash purchases.
- Provision for discounts on creditors.
- Bill payable paid.
- Credit purchase of assets.
- Bill payable withdrawal before the due date of the rebate.
Checking the Accuracy of Posting in Ledger
Generally, the trial balance of the general ledger will be tallied and the balance of the total Debtors/Creditors account will not Tally with the total of the individual balances of customers or suppliers account of the sales or purchase ledger.
Thus, it means mistakes have been committed to sales and purchase ledgers.
If the balances of the total debtors account and total creditors account tally with the total of the individual balance of customers and suppliers accounts of the sales ledger and purchase ledger, It shows mathematical accuracy in the sales ledger and purchase ledger.
Similarly, if the trial balance of the general ledger does not tell it means mistakes have been committed in the general ledger.
