|A self balancing ledger is one:
Whose balances when extracted form a complete trail balance. Under this system there are three ledgers namely:
(1) Bought Ledger which contains the accounts of individual trade creditors
(2) Sales Ledger which contains the accounts of individual trade debtors
(3) General Ledger which contains all the remaining accounts besides (1) & (2)
None of the above ledgers contains in itself all data for the preparation of the trial balance independently. To make each ledger self-balancing, an extra account called General Ledger Adjustment Account is opened in each of the Bought Ledger and Sales Ledgers and two accounts i.e. Bought Ledger Adjustment Account and Sales Ledger Adjustment Account are opened in the General Ledger. As such contra entries are posted in the respective Adjustment Accounts which will show the periodical totals.