T Accounts

What is a 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 to shape of alphabet ‘T’ and depicts graphically credit balances on right side of the account and debit balances on the left side of the account.

T Account Format

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 T Account is given below –

T Account.png 1
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)

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 Notes Payable account will also increase by $10,000. To increase the Cash account, the account is required to be debited since it is an asset account. On the other hand, to increase the ABC’s Notes Payable account, the account is required to be credited 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 it’s liability Notes Payable account will also decrease by $5,000. To reduce the Cash account, the account is required to 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

Explanation

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 result in an increase or decrease of the account value.

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

#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 of time. A general ledger is the repository of all account-related information that is required in order 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. It is the underlying concept for the accounting equationConcept For The Accounting EquationAccounting Equation is the primary accounting principle stating that a business's total assets are equivalent to the sum of its liabilities & owner’s capital. This is also known as the Balance Sheet Equation & it forms the basis of the double-entry accounting system. read more – Total Assets = Total Liabilities + Shareholders’ Equity.

This article has been a guide to T-Account. Here we discuss what T Account along with practical examples and explanation of accounting transactions is. 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 *