Overview
This lecture explains T-accounts, how they visualize debits and credits, and demonstrates their use in basic double-entry bookkeeping with practical examples.
Key Accounting Concepts
- An account records, sorts, and stores all transactions related to a specific group of items.
- A T-account is a visual representation of an account shaped like the letter "T" to separate debits and credits.
- Debits (DR) go on the left of a T-account; credits (CR) go on the right.
- The general ledger stores a complete record of all a business’s financial transactions and accounts.
Debits vs. Credits and the DEALER Rule
- DEALER helps remember which accounts increase on debits or credits:
- Dividends, Expenses, Assets increase with debits (left side).
- Liabilities, Equity, Revenue increase with credits (right side).
- Opening balance is the account's total at the beginning; closing balance is the total at the end.
T-Account Example (Cash Account)
- Cash is an asset; debits increase and credits decrease it.
- Recording transactions using T-accounts helps to visually separate increases and decreases in accounts.
Double-Entry Bookkeeping & T-Accounts
- Every transaction affects at least two accounts (double entry).
- Each side of the transaction is recorded in a different T-account.
- Example transactions for a window cleaning business:
- Owner invests money: debit cash (asset), credit stock (equity).
- Takes out a loan: debit cash, credit loans payable (liability).
- Purchases equipment: credit cash, debit equipment (asset).
- Purchases supplies on account: debit supplies (asset), credit accounts payable (liability).
- Makes a sale and uses supplies: debit cash, credit revenue; credit supplies, debit cost of sales (expense).
Key Terms & Definitions
- Account — a record for tracking financial transactions for a specific item.
- T-account — a diagram used to separate and visualize debits (left) and credits (right).
- General ledger — a book or digital record with all company accounts and transactions.
- Double-entry bookkeeping — system where every transaction impacts at least two accounts.
- Debits (DR) — entries on the left increasing assets/expenses, decreasing liabilities/equity/revenue.
- Credits (CR) — entries on the right increasing liabilities/equity/revenue, decreasing assets/expenses.
- Opening/closing balance — the amount in an account at the start/end of a period.
Action Items / Next Steps
- Practice drawing T-accounts for simple transactions.
- Review the DEALER rule for asset, liability, equity, revenue, expense, and dividend accounts.
- Ensure understanding of debits vs. credits and double-entry bookkeeping.