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What is a T-Account

By Rick Rose,2014-04-06 20:06
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What is a T-Account

    What is a T-Account?

Usually I get two answers to this question.

    1. Type of dinosaur; or

    2. Being from the great state of Tennessee it is that thing that the University of

    Tennessee Volunteers run through on Saturdays at Neyland Stadium in the fall.

Neither answer is correct.

    A T-Account is the simplest way to describe each account in the financial records. Again the types of accounts are assets, liabilities, owner’s equity, income and expense.

A T-Account is displayed below:

     Account Title

    Left Side Right Side

    (Debit) (Credit)

    Each account has a title or name such as Cash, Accounts Receivable, Notes Payable, etc….

    There are two sides to a T-Account, a “left side” and a “right side.” The left side of the T-Account is called a “debit” and the right side is called a “credit.” The terms “debit” and “credit” are derived from the Latin “debere” and “credere.”

    If you remember the accounting equation (Assets = Liabilities + Owner’s Equity), those accounts on the left side of the sea-saw (See article titled “What is the Accounting

    Equation?) have a “debit” balance. Those accounts on the right side normally have a “credit” balance.

    Example: If you have $1,000 in your CASH checking account it is shown as follows:

     Cash

    $1,000

    To increase Cash you would debit the account:

Example: If you take $500 to the bank and deposit it into your account the T-Account

    would now look like:

     Cash

    $1,000

     500

    -----------

    $1,500

The new Cash balance is $1,500.

    To decrease Cash you would credit the account.

Example: If you write a check for $200 for rent, the T-Account would look like:

     Cash

    $1,000

     500

    -----------

    $1,500

    $200 _______________

     $1,300

The new balance would be $1,300.

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