T-Accounts: A Tutorial

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From the course by University of Virginia

Financial Accounting Fundamentals

314 ratings

University of Virginia

Financial Accounting Fundamentals

314 ratings

This course will teach you the tools you'll need to understand the fundamentals of financial accounting. Concise videos, the financial records of a small business, and "your turn" activities guide you through the three most commonly used financial statements: the Balance Sheet, the Income Statement, and the Statement of Cash Flows. Beyond recording transactions, you'll learn how to prepare these financial statements, and read and analyze them to draw basic conclusions about a company's financial health. By the end of this course, you will be able to: - Use journal entries to record transactions; - Prepare and use t-accounts to summarize transactions recorded during an accounting period; - Describe the three most commonly used financial statements and how they fit together; - Prepare these financial statements based on transactions recorded during an accounting period; and - Draw basic conclusions about a company's financial health.

From the lesson

Introduction to Recording Transactions

After learning about the Balance Sheet, we’re ready to move on to using journal entries to record transactions, then t-accounts to summarize transactions recorded during an accounting period. We’ll apply those tools to record transactions for a fictional startup company, The Garden Spot, during its first year of operations (TGS Year 1). As we go along, we’ll also evaluate the effect of transactions on the balance sheet equation to ensure it remains balanced.

Introduction to Recording Transactions1:27

T-Accounts: A Tutorial4:06

Journal Entries: A Tutorial3:47

Recording Transactions: Example 15:32

Recording Transactions: Example 24:50

Recording Transactions: Example 36:10

Recording Transactions: Your Turn10:42

Introduction to TGS Year 15:42

TGS Year 1: Transaction 16:05

TGS Year 1: Transaction 24:35

TGS Year 1: Transaction 32:30

TGS Year 1: Transaction 41:50

TGS Year 1: Transaction 5 and a Summary3:58

Meet the Instructors

Luann J. Lynch
Almand R. Coleman Professor of Business Administration
Darden School of Business

Accounts contain a record of increases and decreases, and asset, liability and

owner's equity items.

The accountant would represent the account graphically using a T account.

Now why would this be called a T account?

Of course because it looks like a T.

In a T account, what we would see is the account

title Above the T.

And then left side entries into this account would be called a debit

and the right side entry into the account would be called a credit.

These terms are a bit difficult to understand, debit and credit.

So what like to do sometimes is just say.

A left side entry shows up on the left side of the T account

And the right side entry Shows up on the right side of the T account.

So we'll use debit and left side entry interchangeably,

credit and right side entry interchangeably.

Now for some accounts, the left side entries, or the debits, are increases.

While the credits and the right side entries are decreases in the account.

But for some other accounts, it's completely the other way around.

Isn't that confusing?

So how do you know whether the left side is an increase or

decrease in the account balance?

Well, here's a trick, remember our balance sheet equation.

And remember that assets are on the left side of this equation and

liabilities and owner's equity on the right side of this equation.

I'm going to make a T account for the asset account.

And of course we could put any asset account name up

there at the top of that T account, cash, inventory, account receivable, equipment.

I'll make a T account for liabilities.

And I'll make a T account for owner's equity.

Noticing that assets are on the left side of this equation can be very

helpful to us in thinking about which side of the T account for

an asset account would contain increases and which would contain decreases?

Since assets are on the left side of the equation, we'll record

any increases to an asset account on the left side of its T account.

And then as a result any decreases in that account balance will be recorded on

the right side of that T account.

Now you might remember from a long time ago in elementary or

middle school when you jump to the other side of the equation,

things tend to turn around and work the opposite way.

So with liabilities and

owner's equity being on the right side of the equation, then let's make sure

we put any increases in those accounts on the right side of those T accounts.

And then as a result decreases in those account balances will show up

on the left side of the T account.

So in summary, an account is going to contain the increases and

decreases in the balances of asset, liabilities, and owner's equity items.

We'll use this T account to represent graphically the account.

Increases in asset accounts go on the left side of the T account,

as assets on the left side of the equation.

Increases in liabilities and

owner's equity go on the right side of the T account.

As liabilities and owner's equity are on the right side of the equation.

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