Self Balancing Ledgers - ICAI Knowledge Gateway Balancing Ledgers • Components/ Divisions Accounts...

Unit 8 Paper 1:Accounting CA SK Chhabra

Self Balancing Ledgers • Components/ Divisions

Accounts prepared for each Sub-Division

What is Sectional Balancing?

Formats/ Proforma of Different accounts

Accounting Entries in the books of Drawer and Drawee

An Intro.

1

• Debtors Ledger or • Sales Ledger or • Sold Ledger • Also known as Subsidiary Ledgers

2 • Creditors Ledger • Purchase Ledger or • Bought Ledger

3 • General Ledger (Nominal Ledger)

In the General Ledger, Two Accounts are prepared These ledger may be called by different names

Bought Ledger Sold Ledger

} Debtor Ledger Adjustment A/c (simply debtors account) Or Sales Ledger Adjustment A/c Or Sold Ledger Adjustment A/c (In reality it is similar to total debtors account)

} Creditors Ledger Adjustment A/c Or Bought Ledger Adjustment A/c Or Purchase Ledger Adjustment A/c (In reality it is similar to total creditors account)

} Adjustment account are also known as control

accounts. For eg. ◦ Debtors Ledger Adjustment Account or ◦ Debtor’s Ledger control account means the same thing

In Debtors Ledger, following one account is prepared } General Ledger Adjustment Account (reverse to total debtors account)

In Creditors Ledger, following one account is

prepared } General Ledger Adjustment Account (reverse to

total creditors account)

} To prove the accuracy of the Sales Ledger we maintain a Total Debtor account in the General Ledger } Where accounts of Individual customer would be

maintained in the sales ledger, ◦ In General Ledger the Total Debtors Account would be

posted by the total of various transaction - Total Credit Sales, Cash Received, Total Discount Allowed etc.

} Balance in the Total Debtors Account ◦ Should be equal to the Total of Balance shown by the

Accounts of Individual Customers

• Debtor Ledger Adjustment A/c in General Ledger • General Ledger Adjustment A/c in Debtors Ledger • Creditors Ledger Adjustment A/c in General Ledger • General Ledger Adjustment A/c in Creditors Ledger

Particulars Rs Particulars Rs

To balance b/d

Credit sales

To General Ledger Adjustment A/c

B/R(Dishonored)

Bank(Discounted B/R Dishonored)

Interest Charged

B/R(Cancelled upon renewal)

Discount Allowed

Creditors(B/R Endorsed Dishonored)

To balance c/d (Advances from customers at the end)

By balance b/d

Cash Received

By General Ledger Adjustment A/c

Bank(Cheques Received)

B/R(Drawn)

Sales Return

Discount Allowed

Rebate/Allowance

Bad debts(Transferred from Creditors Ledger

By balance c/d

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

Particulars Rs Particulars Rs

To balance b/d

Cash Received

To Debtors Ledger Adjustment A/c

Bank

B/R

Sales Return

Discount Allowed

Rebate/Allowance

Bad debts( Transferred from Creditors Ledger

To balance c/d

By balance b/d

Credit Sales

By Debtors Ledger Adjustment A/c

B/R(Dishonored)

Bank(Discounted B/R Dishonored)

Interest Charged

B/R(Cancellation upon Renewal

Discount(Allowed)

By balance c/d

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

Particulars Rs Particulars Rs

To balance b/d

Cash(Paid)

To General Ledger Adjustment A/c

Bank(Issued)

B/P

B/R(Endorsed)

Purchase Returns

Discount Received

Rebate/Allowance

To balance c/d

By balance b/d

Credit Purchases

By General Ledger Adjustment A/c

Endorsed B/R Dishonored

Interest Charged By Creditors

B/P (Dishonored)

Discount (Disallowed)

By balance c/d(Advances from Suppliers at the end)

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

Particulars Rs Particulars Rs

To balance b/d

Credit Purchases

To Creditor Ledger Adjustment A/c

Endorsed B/R Dishonored

Interest Charged By Creditors

B/P(Dishonored)

Discount(Disallowed)

To balance c/d (Advances to customers at the end)

By balance b/d

Cash(Paid)

By Creditor Ledger Adjustment A/c

Bank(Issued Cheques)

B/P

B/R(Endorsed)

Discount Received

Purchase Returns

By balance c/d

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

XX

} Transfer from Debtors Ledger to Creditors Ledger or from Creditors to Debtors Ledger ◦ Amount is reduced from Debtors and Creditors Balance

} If in journal entry Debtors or Creditor’s Account is Debited or Credited only then Debtor Ledger Adjustment or Creditors Ledger Adjustment Account are effected, otherwise it does not effect these account

} Provisions for Doubtful Debts, Provision for Discount on Debtors, Bad Debt Recovered, Cash Sales & Purchase ◦ Do not affect the Debtors Account

Comprehensive Problem May 1999

You are required to prepare the Sales Ledger Adjustment account as on 31.3.2012 } Debtors balance 1.3.2012 50,000 } Transactions during the period were: } Sales (including cash sales of Rs. 20,000) 1,28,000 } Cash received from Debtors 90,000 } Discount allowed to debtors 500 } Acceptances received from debtors 8,000 } Returns from debtors 6,000 } Bills receivable dishonoured 1,500 } Bad Debts written off (after bad debts recovered Rs. 1,000) 4,000 } Sundry charges debited to customers 600 } Transfers to bought ledger 300

Particulars Rs Particulars Rs

To balance b/d

Credit sales

To General Ledger Adjustment A/c

B/R(Dishonored)

Sundry Charges

Cash Received

By General Ledger Adjustment A/c

B/R(Drawn)

Sales Return

Discount

Transfer

Bad debts

By balance c/d

50000

108000

1500

600

90000

6000

500

300

5000

50300

8000

1,60,100 1,60,100

Comprehensive Problem May 2000

Make the Debtors Ledger Adjustment Account in the General Ledger } Total Sales amounted to Rs.1,80,000 including the

sale of old Zerox Machine for Rs.4,800 (Book value Rs.8,000). The total Cash sales were 80% less than the total Credit sales

} Cash collections from debtors amounted to 70% of the aggregate of the opening debtors and Credit sales for the period. Debtors were allowed a cash discount of Rs20,000

} Bills receivable drawn during the three months totalled Rs.30,000 of which bills amounting to Rs.10,000 were endorsed in favour of suppliers. Out of the endorsed Bills one bill for Rs.6,000 were dishonoured for non-payment as the party became insolvent his estate realized nothing } Cheques received from customers Rs.8,000 were

dishonoured a sum of Rs.2,000 was irrecoverable. Bad debts written off in the earlier years realized Rs.11,000 } Sundry debtors as on 1.1.2012 stood at Rs.50000

Particulars Rs Particulars Rs

To balance b/d

Credit sales[100/120*(180000-4800)]

To General Ledger Adjustment A/c

Bank(Cheques Dishonored)

B/R

Creditors

Cash Received

By General Ledger Adjustment A/c

B/R(Drawn)

Discount

Bad debts(6000+2000)

By balance c/d

5000

146000

8000

6000

6000

137200

20000

8000

14800

30000

2,10,000 2,10,000

Comprehensive Problem May 2002

Prepare General Ledger Adjustment A/c in the Debtor’s and Creditor’s Ledger Balance 1.04.2011 Dr Cr

} Debtor’s Ledger 47,200 240 } Creditor’s Ledger 280 26,300 } Transactions for the year ended 31.3.12 Rs. } Total Sales 1,20,100 } Cash sales 8,100 } Total Purchases 89,500 } Credit Purchases 67,000 } Creditors paid off (in full settlement of Rs. 40,000) 39,500 } Received from debtors (in full settlement of Rs. 59,000) 58,200 } Returns from debtors 2,600 } Returns to Creditors 1,800 } Bills Accepted for Creditors 5,500

} Bills Payable Matured 8,000 } Bills Accepted by Customers 20,100 } Bills Receivable Dishonoured 1,500 } Bills Receivables Discounted 5000 } Bills Receivables Endorsed to Creditors 4,000 } Endorsed Bills Dishonored 1,000 } Bad-Debts Written off (after Bad-Debts Recovered Rs. 300) 2,200 } Provision for Doubtful Debts 550 } Transfer from debtor’s Ledger to Creditor’s Ledger 1,100 } Transfer from Creditors Ledger to debtor’s Ledger 1,900 } Balance on 31.3.12 } Debtors’ Ledger (Cr.) 380 } Creditors Ledger (Dr.) 420

Particulars Rs Particulars Rs

To balance b/d

To Debtors Ledger Adjustment A/c

Bank

B/R

Sales Return

Discount Allowed

Bad debts

To balance c/d(Balancing figure)

By balance b/d

Credit Sales

By Debtors Ledger Adjustment A/c

B/R(Dishonored)

Endorsed Bills

By balance c/d

240

58200

20100

2600

800

2500

74640

47200

112000

1500

1000

380 Transfer from Debtor Ledger To Creditor Ledger(1900+1100)

3000

1,62,080 1,62,080

Particulars Rs Particulars Rs

To balance b/d

Credit Purchases

To Creditor Ledger Adjustment A/c

Endorsed B/R Dishonored

To balance c/d

By balance b/d

By Creditor Ledger Adjustment A/c

Bank(Issued Cheques)

B/P Accepted

Discount Received

Purchase Returns

By balance c/d(Balancing figure)

26300

67000

1000

420

280

39500

5500

500

1800

40140

Transfer from Debtors Ledger To Creditors Ledger(1900+1100)

3000

Endorsed To Creditors 4000

94,720 94,720

Comprehensive Problem May 2003

} Prepare Sales Ledger Adjustment A/c in the General Ledger } As on 1-04-2011 balance in sales ledger DR) Rs. 1,41,880 } (CR) Rs. 2,240 } As on 31.3.2012 } Total Sales 7,68,000 } Cash Sales 40,000 } Sales Return 10,000 } Cash received from customers 6,24,000 } Discount allowed 11,200 } Cash paid to supplier 4,80,000 } Transfer from sales to bought ledger 20,800 } Discount received 7,200 } B/R received(B/R drawn) 40,000 } Reserve for doubtful debts 9,160 } Cash paid to customer 1,840 } Bill received dishonored 6,000 } Sales Ledger Balance (Dr.) 1,83,200

Particulars Rs Particulars Rs

To balance b/d

Credit sales

To General Ledger Adjustment A/c

B/R(Dishonored)

Cash Paid to customer

To balance c/d

By balance b/d

Cash Received

By General Ledger Adjustment A/c

B/R(Drawn)

Sales Return

Discount Allowed

Transfer to bought ledger

Bad debts(b-f)

By balance c/d

141800

728000

6000

1840

13720

2240

624000

10000

11200

20800

2000

181200

40000

891440 891440

Comprehensive Problem Nov 2008

} Prepare the necessary adjustment accounts as they would appear in the General Ledger of Govind Ltd.

} Closing debtors balance (per General Ledger Adjustment A/c) 60,000 Cr } Credit sales 40,000 } Credit purchases 15,000 } Paid to creditors 7,500 } Discount allowed 1,500 } Bills payable accepted 5,000 } Discount received 500 } Received from debtors 20,000 } Bad debts 5,000 } Closing creditors balance (per General Ledger adjustment A/c) 30,000Dr } Bills accepted by customers 3,000 } Discount allowed to debtors Rs. 500 was recorded as discount received from creditors.

Particulars Rs Particulars Rs

To balance b/d

Credit sales

To General Ledger Adjustment A/c

By balance b/d

Cash Received

By General Ledger Adjustment A/c

B/R(Drawn)

Discount Allowed 1500+500

Bad debts

By balance c/d(60000-discount)

49500

40000

Nil

20000

2000

5000

59500

3000

89500 89500

To be noted

} Treatment is same whether Transfer is ◦ From Debtors Ledger to creditors Ledger or ◦ From creditors Ledger to Debtors Ledger

} Amount is reduced from balance of ◦ Debtors and Creditors

} Provisions for ◦ Doubtful Debts ◦ Discount on Debtors

} Bad Debt Recovered } Trade Discount Allowed/Received } B/R Discounted or B/R Matured or B/P Paid } Cash Sales } Cash Purchases

} If in journal entry Debtors or creditor’s account is

debited or credited ◦ Only then Debtor Ledger adjustment or creditors ledger

adjustment account are effected, otherwise it does not effect these account

Entries in Books of Drawer & Drawee

S. no.

Particulars B/R is retained

B/R is Discounted

B/R is endorsed

B/R is sent to bank for collection

BOOKS OF DRAWEE

1 Sale of goods on credit by drawer(A) to drawee(B)

B’s A/c Dr. To SalesA/c

Same Same Same Purchase Dr To A’s a/c

2 Acceptance of a B/E by the Drawee

B/R A/c Dr. To B’s A/c

Same

Same same A’s A/c Dr. To B/P A/c

3 Discounting Endorsement/ Bills sent for Collection by Drawer

No Entry

Bank A/c Dr. Discount A/c Dr. To B/r A/c

C’s A/c Dr To B/R A/c

Bill Sent for Collection A/c Dr. To B/R A/c

No Entry

4 B/E honoured on due date

Cash A/c Dr. To B/R A/c

No Entry No Entry Bank A/c Dr. To Bills sent for collection

B/P A/c Dr. To Cash A/c

5 Dishonor of B/Eon due date (i)If noting charges are not paid

B’s A/c Dr. To B/R A/c

B’s A/c Dr. To Bank A/c

B’s A/c Dr. To C’s A/c

B’s A/c Dr. To Bills sent for Collection

B/P A/c Dr. To A’s A/c

S. no.

Particulars B/R is retained

B/R is Discounted

B/R is endorsed

B/R is sent to bank for collection

BOOKS OF DRAWEE

(ii) If noting charges are paid

B’s A/c Dr. [B/R + N.C.] To B/R To Cash A/c [ N.C.]

B’S A/C Dr. [ B/R +N.C.] To Bank A/c [B/R + N.C.]

B’S A/c Dr. [B/R + N.C.] To C’s A/c

B’s A/c Dr. [B/R + N.C] To Bills Sent for collection A/c(B/R) To Bank

B/P A/c Dr. Noting Charge A/c Dr. To A’s A/c

S. no.

Particulars B/R is retained

B/R is Discounted

B/R is endorsed

B/R is sent to bank for collection

BOOKS OF DRAWEE

6 Retirement of a B/E at a rebate by Drawee

Cash A/c Dr. Rebate A/c Dr. To B/R A/c

No entry No Entry Bank A/c Dr. Rebate A/c Dr. To B/R A/c

B/P A/c Dr. To Cash A/c To Rebate A/c

7 Renewal of a B/E(i) Cancellation of old B/E

B’s A/c Dr. To B/R A/c

B’s A/c Dr. To Bank A/c

B’s A/c Dr. To C’s A/c

B’s A/c Dr. To Bill sent for collection A/c

B/P A/c Dr. To A’s A/c

no. Particulars B/R is retained

B/R is Discounted

B/R is endorsed

B/R is sent to bank for collection

BOOKS OF DRAWEE

(ii) Interest Charged by Drawer

B’s A/c Dr. To Interest A/c

B’s A/c Dr. To Interest A/c

B’s A/c Dr. To Interest A/c

B’s A/c Dr. To Interest A/c

Interest A/c Dr. To A’s A/c

(iii) Part Payment by Drawee

Cash A/c Dr. To B’s A/c

Cash A/c Dr. To B’s A/c

Cash A/c Dr. To B’s A/c

Cash A/c Dr. To B’s A/c

A’s A/c Dr. To cash A/c

no. Particulars B/R is retained

B/R is Discounted

B/R is endorsed

B/R is sent to bank for collection

BOOKS OF DRAWEE

(iv)Acceptance of a new B/E by drawee

B/R A/c Dr. To B’s A/c

B/R A/c To B’s A/c

B/R A/c Dr. To B’s A/c

B/R A/c Dr. To B’s A/c

A’s A/c Dr. To B/p A/c

8 Insolvency of the Drawee (i) Dishonour of B/E

B’S A/c Dr. To B/R A/c

B’s A/c Dr. To Bank A/c

B’s A/c Dr. To C’s A/c

B’s A/c Dr. To Bill sent for collection A/c

B/P A/c Dr. To A’s A/c

no. Particulars B/R is retained

B/R is Discounted

B/R is endorsed

B/R is sent to bank for collection

BOOKS OF DRAWEE

(ii) Receipt of amount from the Drawee as Final dividend

Cash Dr. Bad Debts A/c Dr. To B’s A/c

Cash A/c Dr. Bad Debts A/c Dr. To B’s A/c

Cash A/c Dr. Bad Debts A/c Dr. To B’s A/c

Cash A/c Dr. Bad Debts A/c Dr. To B’s A/c

A’s A/c Dr. To Cash A/c To P/L A/c Or deficiency A/c

no. Particulars B/R is retained

B/R is Discounted

B/R is endorsed

B/R is sent to bank for collection

BOOKS OF DRAWEE

} B/E –Bills of Exchange; B/R Bills Receivable; B/P

Bills Payable; N/C- Noting Charges;B=Debtor;C=Creditor } Sans Recourse means if Bill endorsed is

dishonored then there is no liability of the endorser.