📑 Topics on this page (Jump to Topic):
📌 1. Division of the Ledger
| Ledger | Contains |
|---|---|
| Debtors / sales ledger | Customers' personal accounts |
| Creditors / bought ledger | Suppliers' personal accounts |
| General ledger | Real and nominal accounts, capital, loans etc. |
- In a big business the ledger is divided to locate errors quickly, divide work and improve internal control.
📌 2. Self-Balancing System
In self-balancing ledgers, an adjustment (control) account is opened in each ledger so that each ledger can produce its own trial balance.
| Ledger | Adjustment account opened |
|---|---|
| Debtors ledger | General Ledger Adjustment A/c |
| Creditors ledger | General Ledger Adjustment A/c |
| General ledger | Debtors Ledger Adjustment A/c and Creditors Ledger Adjustment A/c |
- In the debtors ledger, the General Ledger Adjustment A/c is the reverse of customer accounts: credit sales → credit; cash received, discount, returns, bad debts → debit.
- Entries in adjustment accounts are usually made from monthly totals of subsidiary books.
| General Ledger Adjustment A/c (in Debtors Ledger) | |||||
|---|---|---|---|---|---|
| Dr. Date | Particulars | ₹ | Cr. Date | Particulars | ₹ |
| To Sales Returns | 6,000 | By Balance b/d | 50,000 | ||
| To Cash | 1,10,000 | By Credit Sales | 1,50,000 | ||
| To Discount Allowed | 4,000 | ||||
| To Balance c/d | 80,000 | ||||
Its credit balance of ₹80,000 = total of all debit balances of customer accounts in the debtors ledger. The debtors ledger thus "balances itself".
📌 3. Sectional Balancing
- In sectional balancing, only the general ledger keeps a Total Debtors A/c and Total Creditors A/c; no adjustment account is kept in the debtors/creditors ledgers.
- Self-balancing keeps double entry complete in every ledger; sectional balancing keeps totals only as a memorandum.
| Item | In Total Debtors A/c (general ledger) |
|---|---|
| Opening debtors, credit sales, bills dishonoured | Debit |
| Cash received, discount allowed, sales returns, bad debts, bills received | Credit |
| Cash sales | Not recorded (no link with debtors) |
📌 4. Single Entry System (Incomplete Records)
- Only cash and personal accounts are kept; real and nominal accounts usually are not. Used by small traders; not legally acceptable for companies.
- Statement of affairs — like a balance sheet but with estimated assets and liabilities; it gives capital.
- Profit = closing capital − opening capital + drawings − additional capital (net worth / capital comparison method).
- Example: opening capital ₹2,00,000, closing ₹2,60,000, drawings ₹30,000, additional capital ₹40,000 → profit = 2,60,000 − 2,00,000 + 30,000 − 40,000 = ₹50,000.
- Second method — conversion method: find missing figures from total debtors/creditors accounts and cash summary, then prepare full final accounts.
⚠️ Exam Traps:
- Statement of affairs vs balance sheet: the former rests on incomplete records and estimates; the latter on ledger balances.
- The debtors ledger holds the General Ledger Adjustment A/c, not the "Debtors Ledger Adjustment A/c" — that one sits in the general ledger.
- No trial balance can be drawn under single entry, so arithmetical accuracy cannot be checked.
💡 Memory Tip: An adjustment account is always named after the other ledger: in the debtors ledger "General Ledger Adjustment", in the general ledger "Debtors Ledger Adjustment".
📌 5. Worked Examples
Example: profit from statements of affairs (capital comparison)
| Item | Opening (₹) | Closing (₹) |
|---|---|---|
| Cash | 5,000 | 8,000 |
| Stock | 25,000 | 32,000 |
| Debtors | 20,000 | 28,000 |
| Furniture (closing after ₹1,000 depreciation) | 10,000 | 9,000 |
| Less: creditors | 15,000 | 17,000 |
| Capital | 45,000 | 60,000 |
Drawings ₹12,000, additional capital ₹5,000. Profit = closing capital + drawings − additional capital − opening capital = 60,000 + 12,000 − 5,000 − 45,000 = ₹22,000.
Missing figure (total debtors account): opening debtors 20,000 + credit sales ? − cash received 70,000 = closing 28,000 → credit sales = ₹78,000.
📌 6. Practice MCQs
📝 Practice MCQs (prepared by SF Prep — not PYQs)
Q1. Under self-balancing, which account is opened in the debtors ledger? Practice
Correct answer: (B)
The adjustment account is named after the other ledger.
The adjustment account is named after the other ledger.
Q2. Which adjustment accounts are kept in the general ledger? Practice
Correct answer: (A)
One for each of the other two ledgers.
One for each of the other two ledgers.
Q3. In the debtors ledger, credit sales are entered in the General Ledger Adjustment A/c on the: Practice
Correct answer: (C)
It is the reverse of the customers' entries.
It is the reverse of the customers' entries.
Q4. Under sectional balancing, adjustment (total) accounts are kept: Practice
Correct answer: (D)
Not in the debtors/creditors ledgers.
Not in the debtors/creditors ledgers.
Q5. Which item is NOT recorded in the Total Debtors A/c? Practice
Correct answer: (B)
Cash sales create no debtors.
Cash sales create no debtors.
Q6. The main benefit of self-balancing ledgers is that: Practice
Correct answer: (B)
Each ledger yields its own trial balance.
Each ledger yields its own trial balance.
Q7. Entries in adjustment accounts are usually made from: Practice
Correct answer: (C)
Posting totals saves time.
Posting totals saves time.
Q8. Under single entry, which accounts are usually kept? Practice
Correct answer: (D)
Real and nominal accounts are usually missing.
Real and nominal accounts are usually missing.
Q9. Opening capital ₹2,00,000, closing ₹2,60,000, drawings ₹30,000, additional capital ₹40,000. Profit is: Practice
Correct answer: (A)
2,60,000 − 2,00,000 + 30,000 − 40,000.
2,60,000 − 2,00,000 + 30,000 − 40,000.
Q10. The statement prepared to find capital from incomplete records is the: Practice
Correct answer: (D)
Assets − liabilities = capital.
Assets − liabilities = capital.
Q11. Under the capital comparison method, drawings are: Practice
Correct answer: (A)
Drawings cut capital, not profit.
Drawings cut capital, not profit.
Q12. A limitation of single entry is that: Practice
Correct answer: (B)
The dual aspect is not complete.
The dual aspect is not complete.
Q13. A statement of affairs differs from a balance sheet because it is based on: Practice
Correct answer: (C)
A balance sheet is drawn from ledger balances.
A balance sheet is drawn from ledger balances.
Q14. The credit balance of the General Ledger Adjustment A/c in the debtors ledger equals: Practice
Correct answer: (C)
That is how the ledger balances itself.
That is how the ledger balances itself.
Q15. The creditors ledger is also called the: Practice
Correct answer: (D)
It holds suppliers' accounts.
It holds suppliers' accounts.
Q16. In the debtors ledger, cash received from customers is entered in the General Ledger Adjustment A/c on the: Practice
Correct answer: (A)
Customers are credited, so the adjustment account is debited.
Customers are credited, so the adjustment account is debited.
Q17. The method of preparing full final accounts from incomplete records is the: Practice
Correct answer: (B)
Missing figures are derived from total accounts.
Missing figures are derived from total accounts.
Q18. A dishonoured bill receivable appears in the Total Debtors A/c on the: Practice
Correct answer: (A)
The debtor owes again.
The debtor owes again.
Q19. Under self-balancing, which ledger can produce its own trial balance? Practice
Correct answer: (C)
Each ledger has an adjustment account.
Each ledger has an adjustment account.
Q20. Under the capital comparison method, additional capital introduced is: Practice
Correct answer: (D)
It raised capital, not profit.
It raised capital, not profit.