T-Accounts Reviewer

1. Introduction to T-Accounts

1.1. Definition

A T-account is a visual representation of individual accounts in the general ledger. It is called a T-account
because its layout resembles the letter "T". The account title is written above the T, debits are recorded
on the left side, and credits are recorded on the right side.

1.2. Purpose

T-accounts are used to:

Track the increases and decreases in each account.

Help in understanding the effects of transactions on accounts.

Facilitate the preparation of financial statements.

2. Structure of T-Accounts

Account Title: Written at the top of the T-account.

Left Side (Debit): Records increases in assets and expenses, and decreases in liabilities, equity, and
revenues.

Right Side (Credit): Records increases in liabilities, equity, and revenues, and decreases in assets and
expenses.

2.1. Basic Rules

Assets: Increased by debits, decreased by credits.

Liabilities: Increased by credits, decreased by debits.

Equity: Increased by credits, decreased by debits.

Revenues: Increased by credits, decreased by debits.

Expenses: Increased by debits, decreased by credits.

3. Using T-Accounts

3.1. Recording Transactions

Each transaction affects at least two accounts (double-entry bookkeeping). For every debit entry, there
must be a corresponding credit entry.
3.2. Example Transactions

Investing Cash into Business

Transaction: Owner invests $10,000 cash into the business.

Accounts Affected: Cash (Asset), Owner’s Equity (Equity).

T-Account Entries:

Cash: Debit $10,000

Owner’s Equity: Credit $10,000

Purchasing Equipment for Cash

Transaction: Purchase equipment for $3,000 cash.

Accounts Affected: Equipment (Asset), Cash (Asset).

T-Account Entries:

Equipment: Debit $3,000

Cash: Credit $3,000

Making a Sale on Credit

Transaction: Sold goods worth $5,000 on credit.

Accounts Affected: Accounts Receivable (Asset), Sales Revenue (Revenue).

T-Account Entries:

Accounts Receivable: Debit $5,000

Sales Revenue: Credit $5,000

Paying Salaries

Transaction: Paid $2,000 in salaries.

Accounts Affected: Salaries Expense (Expense), Cash (Asset).

T-Account Entries:

Salaries Expense: Debit $2,000

Cash: Credit $2,000

3.3. Balancing T-Accounts

After recording transactions, each T-account should be balanced by:

Summing the debits and credits on each side.

Calculating the difference between total debits and total credits.

Placing the difference on the side with the lesser total to balance the account.

4. Example of T-Accounts

Example: Summary of Transactions for ABC Company

Investment by Owner:

Cash:

Debit: $10,000

Owner’s Equity:

Credit: $10,000

Purchase of Equipment:

Cash:

Credit: $3,000

Equipment:

Debit: $3,000

Sale on Credit:

Accounts Receivable:

Debit: $5,000

Sales Revenue:

Credit: $5,000

Payment of Salaries:

Cash:
Credit: $2,000

Salaries Expense:

Debit: $2,000

T-Accounts for ABC Company

5. Key Points to Remember

Each transaction affects at least two T-accounts.

Debits must always equal credits in each transaction.

T-accounts help in visualizing the effects of transactions on individual accounts.

Properly balancing T-accounts is crucial for accurate financial reporting.