Meaning of T Account Part 1

A T account is a simplified version of an account with two columns. Which allows him to double-entry bookkeeping represent simplified.

T account: A common method

Transactions generally have an impact on the items on the balance sheet . In every company, so-called business cases are dealt with every day. In order not to lose track of things, each individual position is first assigned to an account in the bookkeeping. You can do this with the T-Account.

According to Electronicsencyclopedia, T-accounts are simplified representations of charts of accounts (two columns) from double-entry bookkeeping. This type of booking process has been used by entrepreneurs for over 700 years. Now, in the IT age, electronic systems have replaced the T-account on paper. Manual entries on the T-accounts were replaced by the booking record . However, the validity of this logic has remained. You have to know this as a self-employed person because this working method is the basis of all accountants, tax specialists and auditors.

It is often the case that difficult booking cases can only be processed reliably with the help of the T-account method. So if you are dealing with bookings for the first time, you can use the T-Account as a common method. In this way you can keep track of everything and practice all debit and credit booking processes.

Establishing and maintaining a T-account

A T account is so called because it looks like a “T” graphically:
It consists of two columns (entries are made here that document debit and credit ) and a roof (label / description of the account).

In the case of a simple T-account, the names for the business cases are inserted into the columns together with the respective amount. On the left you enter the debit amounts, on the right the credit amounts. Receivables and debts are clearly structured.
Basically you book on two different pages. The debit position on the left and the credit position on the right always change. Only one of the two sides never changes.

An asset account is set up for each asset position and a liability account for each liability position. Extended account sheets are required for double-entry bookkeeping. There is another column on the left that describes the respective business case.

Dissolution of the balance sheet in T-accounts

Basically, every transaction you make can be represented as a change in the balance sheet. The individual items on your balance sheet change continuously in the current financial year. The documentation of these changes in inventory is not shown in the balance sheet, but is broken down into accounts. These stocks continue the capital and asset items on the balance sheet. That is why they are called inventory accounts. A distinction is made between active and passive inventory costs. At the end of the financial year you then have to determine the new final balance. Therefore, you have to assign an account to each item on your balance sheet and transfer the corresponding value of the balance sheet item there.

Accounts can be for example:

  • bank
  • cash register
  • liabilities
  • machinery
  • requirements

At the beginning of the financial year you have to set up a separate posting account for each balance sheet item and record the opening balance (opening balance sheet account). In the course of the year, all related business transactions must then be recorded in the T-accounts. In large companies, the booking accounts are converted into sub-accounts, which in turn relate to the main account. At the end of the year, the closing values ​​are first transferred to the higher-level account, from there to the inventory and finally to the balance sheet.

Dissolution of the balance sheet in T-accounts: example

To summarize again briefly: Every posting in a business transaction therefore needs at least one debit and one credit account.
To illustrate this, imagine that you are buying 10 kilos of potatoes. The account affected by this is the “Inventories” account.

So you buy 10 kilos of potatoes for 30 euros. If you sell 5 kilos of it (worth 15 euros), your account will look like this:
On the debit side you enter “potatoes 30 euros”. You write the 5 kilos sold on the credit side. However – watch out – it’s not the amount that counts here, but the value: You have to enter “Potatoes 15 euros.
Now you have to add up the larger side (debit side). You transfer these 30 euros to the credit side and calculate the difference:
30 € – 15 € = 15 €
This is your balance . So what’s on your account.

T account template

Postings can be easily illustrated with T-accounts. Sooner or later you will likely need a template for T-accounts – or be able to see the situation clearly. But it is too cumbersome to pick up a pen and ruler every time. You can buy appropriate pads in the stationery store. Perhaps it is better to look for appropriate sample forms on the Internet. There are tons of templates in various formats on the Internet that you can print out.

T-account template: Word

You can simply print out PDF templates free of charge or fill them out on your PC and then print them out with your individual content.

T-account template Excel

Excel templates for T-accounts are also available with and without the automatic balance creation function.

Transaction Account 1