T-Account

The account name goes at the top of the T. Increases and decreases are written on the two sides according to the rules of debits and credits, and the balance is found by comparing the two sides.

Consider a cash T-account. A starting balance of 5,000 and receipts of 3,000 go on the left, the debit side. Payments of 2,500 go on the right, the credit side. The debit side totals 8,000 and the credit side 2,500, so the account has a debit balance of 5,500.

T-accounts are mainly a learning and thinking tool. Students use them to see clearly how a transaction affects each account, and accountants sketch them to work out complicated entries or to trace errors.

In practice, businesses record transactions in software, which shows account balances in tables rather than T-shapes. The logic, however, is exactly the same: every transaction appears as a debit in at least one account and a credit in at least one other.