FLASH SALE! - "FINANCIAL MODELING COURSE BUNDLE AT 60% OFF" Enroll Now

T Accounts

Updated on January 3, 2024
Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

What is T Account?

T Account is a visual presentation of accounting journal entries that are recorded by the company in its general ledger account in such a way that it resembles the shape of the alphabet ‘T’ and depicts credit balances graphically on the right side of the account and debit balances on the left side of the account.

T Account

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: T Accounts (wallstreetmojo.com)

A T account ledger is an informal way of addressing a double-entry bookkeeping system. On the top, the name of the ledger is mentioned, the left side is for debit entries, and the right side is for credit entries within the ledger. It is essentially a visual or graphical representation of the company’s accounts which can be used to present, scrutinize, or review.

T Accounts Explained

In a T account, all business transactionsBusiness TransactionsA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company's financial statements.read more impact at least two of the company’s accounts in such a way that if one account gets a debit entry, then another account will get a credit entry of the identical amount to close each transaction that occurs. For different account types, a debit and a credit may increase or decrease the account value.

Accounting for Financial Analyst (16+ Hours Video Series)

–>> p.s. – Want to take your financial analysis to the next level? Consider our “Accounting for Financial Analyst” course, featuring in-depth case studies of McDonald’s and Colgate, and over 16 hours of video tutorials. Sharpen your skills and gain valuable insights to make smarter investment decisions.

Putting all the accounts together in a tabular form depicting the impact on each account type:

Account TypeDebitCredit
AssetIncreaseDecrease
LiabilityDecreaseIncrease
Shareholder’s EquityDecreaseIncrease
Revenue/GainDecreaseIncrease
Expense/LossIncreaseDecrease

Format

Let us understand the format of a T account ledger and how it is designed in a way where it gives the individual reviewing it an ease of locating entries.

The name of the account is written above the “T” along with the account number (if available), while the total balance for each “T” account is written at the bottom of the account. The format of the T Account is given below –

T Account.png 1

Examples

Let us take an example of T accountsExample Of T AccountsThe T-Account is a visual representation of journal entries that are recorded in the general ledger account. The T-account is named for the way bookkeeping entries are shown, which mimics the shape of the letter T. It graphically represents credits on the right side and debits on the left.read more with the following two transactions-

Example #1

On January 01, 2018, a company ABC Ltd borrowed $10,000 from a bank:

This transaction will increase ABC’s Cash account by $10,000, and its liability of the Notes Payable account will also increase by $10,000.  The T account balance must be debited to increase the Cash account, since it is an asset account. On the other hand, t the account must be credited o increase ABC’s Notes Payable account, since it is a liability account.

T Account example 1
T Account example 1-1

Example #2

On February 01, 2018, ABC Ltd repaid a bank loan of $5,000:

This transaction will decrease ABC’s Cash account by $5,000, and its liability Notes Payable account will also decrease by $5,000. To reduce the Cash account, the account must be credited since it is an asset account. On the other hand, the Notes Payable accountNotes Payable AccountNotes Payable is a promissory note that records the borrower's written promise to the lender for paying up a certain amount, with interest, by a specified date. read more is expected to be debited since it is a liability account.

T Account example 1-2
example 1-3

The below table presents the general journal entries for the two transactions mentioned in the T accounts above.

example 1-4
example 1-5

Let us understand the concept in depth through understanding the related terminologies of a T account balance through the discussion below.

#1 – General Ledger

A general ledger is a formal representation of a company’s financial statements where the debit account and credit account records are validated with a trial balance. A general ledger offers comprehensive documentation of all financial transactions of the company over a certain period. A general ledger is the repository of all account-related information required to prepare a financial statement. The typical accounts include accounts of assets, liabilitiesAccounts Of Assets, LiabilitiesWhat makes Assets & Liabilities different is that while the former refers to anything that a Company owns to gain long-term economic benefits, the latter refers to anything that the Company owes to other parties. read more, shareholders’ equity, revenues, and expenses, etc.

#2 – Double Entry Accounting

The double-entry accounting method is a fundamental concept that drives contemporary bookkeepingBookkeepingBookkeeping is the day-to-day documentation of a company’s financial transactions. These transactions include purchases, sales, receipts, and payments.read more  and accounting techniques. It is built on the fundamental premise that every financial transaction has an equal and opposite impact on at least two different accounts. The accounting equation’s underlying concept is Total Assets = Total Liabilities + Shareholders’ Equity.

This article has been a guide to what is T-Account. Here we explain its examples, format, and related terminologies in detailed manner. You may also find some useful accounting articles below –

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *