Overview
This lecture provides an introduction to T-accounts, their structure, usage, and how they fit into the basics of double-entry bookkeeping through practical examples.
Key Terms and Concepts
- Accounts are records where transactions related to a group of items are sorted and stored.
- A T-account is a visual tool for tracking debits (left) and credits (right) within an account.
- The general ledger stores all business accounts and transactions.
- Debits increase dividends, expenses, and assets; credits increase liabilities, owner's equity, and revenue (DEALER mnemonic).
Structure and Use of T-Accounts
- T-accounts look like a "T" with debits recorded on the left and credits on the right.
- Markings "DR" (debit) and "CR" (credit) indicate sides of the T-account.
- Asset increases are debited; liability and equity increases are credited.
- Opening balance is the total at the start; closing balance is the total at the end of a period.
Example Transactions with T-Accounts
- Owner invests $100 into business: Debit cash (asset), Credit stock (equity).
- Business takes a $200 loan: Debit cash (asset), Credit loans payable (liability).
- Spend $30 on equipment: Credit cash, Debit equipment (asset).
- Buy $50 supplies on account: Debit supplies (asset), Credit accounts payable (liability).
- Earn $150 from cleaning service: Debit cash, Credit revenue (income).
- Use half of supplies: Credit supplies, Debit cost of sales (expense).
Double-Entry Bookkeeping
- Every transaction affects at least two accounts, requiring both a debit and a credit entry.
- T-accounts facilitate visualization of how transactions impact different accounts.
Key Terms & Definitions
- Account — A record for storing financial transactions of specific items.
- T-account — Diagram showing debits (left) and credits (right) for an account.
- General Ledger — Complete record of all financial transactions and accounts in a business.
- Debit (DR) — Left side entry; increases assets/expenses, decreases liabilities/equity/revenues.
- Credit (CR) — Right side entry; increases liabilities/equity/revenues, decreases assets/expenses.
- Double-entry bookkeeping — System where every transaction has equal debits and credits in at least two accounts.
Action Items / Next Steps
- Practice drawing T-accounts for example transactions.
- Review the DEALER mnemonic for remembering debit and credit effects.
- Prepare for further examples of double-entry bookkeeping.