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What Is a T Account?

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Last editedJun 20213 min read

Where do you record debits and credits? If your business uses the double-entry bookkeeping system, you’ll need to know how to read T tables. So, what is a T account, and how does it work? We’ll take a closer look at how this common accounting practice can keep your records well-organized below.

Understanding T accounts

Also called a ledger account, a T account describes a method for recording transactions under the double-entry bookkeeping system. Each entry consists of an account title and two columns, which will look like a large letter T on paper. At the top of the T’s horizontal line, you’ll list the title of the account. Debits are listed on the left-hand side of the T, and credits on the right:

<table> <tbody> <tr> <td colspan="2"> Account Name </td> </tr> <tr> <td> Debit </td> <td> Credit  </td> </tr> </tbody> </table>

Your company’s general ledger will be composed of various T charts grouped by transaction type. This helps map out your transactions in chronological order, giving an easy visual record of debited and credited accounts. The simple, user-friendly layout makes it more likely that you’ll spot errors before the transactions are recorded in official financial statements.

The basics of T chart accounting

Under the double-entry bookkeeping system, every financial transaction impacts at least two accounts. One account receives a debit entry, while the other receives a balancing credit entry. These debits and credits must balance one another. To this end, T accounts are often displayed in pairs like the following:

<table> <tbody> <tr> <td colspan="2"> Operating Cost </td> <td colspan="2"> Bank Account </td> </tr> <tr> <td> Debit </td> <td> Credit </td> <td> Debit </td> <td> Credit </td> </tr> <tr> <td> $500 </td> <td>   </td> <td>   </td> <td> $500 </td> </tr> </tbody> </table>

In the T account example above, a company’s bank account receives a $500 credit to balance the $500 debit in operating costs.

How to read T tables

Although double-entry accounting can be complicated at times, learning how to read T tables is simple. Just remember the following:

The debit entries are on the left side of the T
The credit entries are on the right side of the T
The account is listed at the top

So, what exactly does this mean in relation to your finances? In double-entry bookkeeping, debit entries are recorded when the account increases. Credit entries are recorded on the T chart’s right hand side when the account decreases. For example, if your business receives a cash payment, it will list this as a debit to the asset account.

T account example

For another example of how to record a transaction using T accounts, imagine the following scenario. A bookstore has just sold $100 worth of children’s books. To record this transaction, you

<table> <tbody> <tr> <td colspan="2"> Cash Account </td> <td colspan="2"> Inventory Account </td> </tr> <tr> <td> Debit </td> <td> Credit </td> <td> Debit </td> <td> Credit </td> </tr> <tr> <td> $100 </td> <td>   </td> <td>   </td> <td> $100 </td> </tr> </tbody> </table>

The cash account shows a debit of $100, while the inventory account receives a credit of $100 to balance the entry. It might seem counterintuitive, but just remember when reading a T account that:

Credits increase liability, equity, and revenue accounts
Debits decrease liability, equity, and revenue accounts
Debits increase asset and expense accounts
Credits decrease asset and expense accounts

Should you use a T chart accounting system?

T charts are only used for double-entry bookkeeping. If your business uses a single-entry accounting system instead, there’s no need to create T accounts. Double entries offer several advantages, including the ability to catch errors before transactions make their way to the financial statements. With a double-entry system, you can verify at each step that debits and credits are balanced.

However, there are some flaws to the system as well. While you can check if every debit has a balancing credit, there’s no way to safeguard against missing transactions. It’s also easy to enter transactions in the wrong categories or accounts.

Overall, it’s worth considering the T account and double-entry system. They do involve some time to prepare, but this ensures that necessary details are recorded on all financial statements. You can see debits and credits clearly laid out in an easy-to-read, visual structure for more effective accounting.

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