in this lesson we will focus our
attention on T accounts one of the most important tools that accountants use
when registering a transaction as one can imagine a t-account takes the shape
of the letter T on the top side of the letter t is the account title for
example inventory accounts payable revenue and so on contained on the left
and right sides of the letter T will be the information about the accounts
increases and decreases T accounts are helpful for a number of reasons but
mostly for the fact that they allow us to visualize transactions in an easier
way when we draw up a line below the registered entries in a t account we are
able to calculate the difference between the accounts increases and decreases
which represents the current balance of the account we can think of the balance
sheet of a given company as one big t account on the top of the letter T we
will have the title balance sheet on the left side will be positioned the
company’s assets while on the right side will contain its liabilities and equity
contained inside this large t account will be smaller T accounts they will be
on the left the asset side and on the right where we have liabilities and
equity each of these accounts represents a separate general ledger such as cash
accounts receivable PP Amy on the asset and trade payables financial liabilities
and common stock on the liabilities and equity side one of the most common
accounting terms that you will probably have already heard is debits and credit
these two words are used to describe the two sides of a t-account
debet stands for the left side while credit stands for the right side try to
remember that if you start thinking about the meaning of these words in the
common world you can get confused think of debit as the left side of a tea
account and credit as the right side it is simple as that
assets increase on the debit side and decrease on the credit side therefore if
we want to show that the firm has bought new assets we will write it on the left
side of the t account given that liabilities are the opposite of assets
when we increase a liability we have to write on the credit side if a liability
is decreased it will be written on the debit side the same goes for equity
increases are on the right side and decreases on the left think of it in the
following way and it will be very easy for you to remember assets are on the
left side right when an asset increases we write such an increase on the left
side of the t account this is where debits are liabilities and equity are on
the right side right quite intuitively when a liability increases its increase
is on the right side of the t account credits this is the best way to think of
it and then when we have a decrease we can write it on the other part of the T
account the right side for assets and the left side for liabilities and equity
I know it can be a little confusing but you only need to remember two things
debits are on the left and credits are on the right this is the first thing
don’t think of debits and credits in any other way the second thing to remember
is that assets stand on the left side and their increase is registered on the
left side of a t-account while liabilities and equity are on the right
side of a balance sheet and increase to the right makes sense doesn’t it
given that in the last two lessons we saw several new concepts such
general ledger T accounts debits and credit I suggest that you rewind the
videos if you feel there are some concepts you’re uncertain about
alternatively you can write us a message thank you for watching