T accounts explained

00:05:38
https://www.youtube.com/watch?v=f1TDNhuPJLc

Sintesi

TLDRThe video exalts the usefulness of T accounts in accounting and provides a straightforward guide on mastering them in four steps. It explains T accounts as visual diagrams representing accounts used to think through journal entries. Debits are on the left, and credits are on the right. In their 'natural state,' asset accounts have a debit balance, while liabilities and equity have a credit balance. Revenue and expense accounts are part of equity; revenue has a credit balance, and expenses a debit balance, influencing net income and the equity account. To visualize transactions using T accounts, identify the type of account needed first before proceeding with specific entries. Using examples, the video demonstrates populating T accounts with transactions, calculating opening and ending balances, and composing a trial balance from these to summarize the ledger. Finally, it encourages viewers to learn more about accounting through further resources.

Punti di forza

  • 📌 T accounts are key tools in accounting.
  • 🔍 They visually represent accounts for recording transactions.
  • ↔ Debits are on the left, credits are on the right.
  • 📊 Asset accounts naturally have a debit balance; liabilities and equity have credit balances.
  • 📈 Revenue and expense accounts are parts of equity.
  • 🗃 T accounts can be seen as mini balance sheets for specific ledger accounts.
  • 🎯 For journal entries: decide type and specific account.
  • 💰 Buying assets increases one asset account and decreases another.
  • 💡 Calculate the ending balance by combining opening balance, debits, and credits.
  • 📚 Encourages further learning in accounting and finance.

Linea temporale

  • 00:00:00 - 00:05:38

    The video starts with an enthusiastic praise for T accounts, highlighting their importance in accounting as a fundamental tool for solving problems. The presenter promises to teach the mastery of T accounts through four simple steps: defining a T account, understanding the function of debits and credits, determining the type of account for journal entries, and calculating the ending balance. The initial focus is on memorizing the structure of a T account, with debits on the left and credits on the right, and recommends techniques to aid memorization.

Mappa mentale

Mind Map

Domande frequenti

  • What is a T account in accounting?

    A T account is a visual representation of an account used to think through journal entries for recording transactions.

  • How are debits and credits represented in a T account?

    Debits are recorded on the left side, and credits are recorded on the right side of the T account.

  • What do asset accounts have in their natural state?

    Asset accounts have a debit balance in their natural state.

  • What do liabilities and equity accounts have in their natural state?

    Liabilities and equity accounts have a credit balance in their natural state.

  • How can you visualize journal entries using T accounts?

    Decide the type of account (asset, liability, equity, revenue, expense) and then the specific account to visualize the journal entry.

  • What happens to revenue and expense accounts at the end of an accounting period?

    Revenue accounts with a credit balance roll up into equity and make it grow, while expense accounts with a debit balance roll up into equity and make it shrink.

  • What is the result if revenue is higher than expenses?

    You generate a positive net income, which adds to the equity balance.

  • How does buying assets affect the T account?

    Buying assets like a building increases fixed assets and decreases cash, recorded as a debit to fixed assets and a credit to cash.

  • What is the effect of liability accounts in T accounts?

    Liability accounts increase when credits are added and decrease when debits are added.

  • How do you calculate the ending balance for an account in T accounting?

    Add the opening balance, and the debits and credits for the period, to calculate the ending balance for an account.

Visualizza altre sintesi video

Ottenete l'accesso immediato ai riassunti gratuiti dei video di YouTube grazie all'intelligenza artificiale!
Sottotitoli
en
Scorrimento automatico:
  • 00:00:00
    T accounts are awesome! T accounts are the most useful tool in accounting.
  • 00:00:07
    T accounts are fundamental to your understanding of accounting.
  • 00:00:11
    T accounts are helpful in solving any accounting problem.
  • 00:00:14
    T accounts are spectacular! OK, that’s enough praise for T accounts.
  • 00:00:20
    Let’s get to work. How do you master T accounts?
  • 00:00:23
    By taking four simple steps. Stay with me, and let’s get this done!
  • 00:00:28
    Here’s a very simple definition of a T account:
  • 00:00:32
    a T account is a visual representation of an account, to think through the journal entries
  • 00:00:37
    you are going to make to record transactions.
  • 00:00:41
    T accounting step one: Take a piece of paper and draw a “t”.
  • 00:00:46
    No, not that one. A capital “T”.
  • 00:00:49
    Now write: debits on the left, credits on the right.
  • 00:00:52
    This is something you need to memorize. Repeat it to yourself fifty times
  • 00:00:57
    per day, put post it notes all over your house, or even better: download the Finance Storyteller
  • 00:01:04
    lockscreen wallpaper image for your phone, so you can repeat “debits on the left, credits
  • 00:01:10
    on the rights” every single time you pick up your phone.
  • 00:01:15
    T accounting step two: take a look at this T account and this balance sheet.
  • 00:01:20
    Looks pretty similar, right?
  • 00:01:22
    That’s because it’s the same basic idea.
  • 00:01:25
    Debits on the left, credits on the right.
  • 00:01:29
    Asset accounts in their “natural state” have a debit balance,
  • 00:01:32
    liabilities and equity accounts in their “natural state” have a credit balance.
  • 00:01:37
    You can think of a T account as a mini balance sheet,
  • 00:01:41
    for one specific account in the ledger.
  • 00:01:45
    Assets go up if you add debits, and down if you book credits.
  • 00:01:50
    Liabilities and equity go up if you add credits, and down if you book debits.
  • 00:01:56
    Here’s a little secret shortcut that very
  • 00:01:59
    few people realize: the two types of income statement accounts revenue and expense are
  • 00:02:06
    essentially just a subset of equity. Revenue accounts in their “natural state” have
  • 00:02:10
    a credit balance, at the end of the accounting period they will roll up into equity and make
  • 00:02:15
    it grow. Expense accounts in their “natural state” have a debit balance, at the end
  • 00:02:20
    of the accounting period they will roll up into equity and make it shrink. If revenue
  • 00:02:26
    is higher than expenses, you generate a positive net income, which adds to the equity balance.
  • 00:02:33
    T accounting step three: for every journal entry that you want to visualize with T accounts,
  • 00:02:39
    decide first which type of account you need (asset, liability, equity, revenue, expense),
  • 00:02:46
    and then which specific account in that category. Let’s take an example with accounts and
  • 00:02:52
    numbers from the “income statement versus balance sheet” video (that I encourage you
  • 00:02:56
    to watch first by clicking on the link) to work through some T account examples.
  • 00:03:01
    Let’s buy a small building and a forklift truck for one hundred thousand dollars in
  • 00:03:07
    total for our chocolate shop, and pay immediately. If you read that sentence carefully, you see
  • 00:03:14
    a specific type of assets (things that the company owns) going up in the first part,
  • 00:03:19
    and another type of assets going down in the second part. So the type of account is assets
  • 00:03:25
    on both the debit and the credit side. More specifically, fixed assets go up, we need
  • 00:03:31
    to add debits to this account. Cash is going down, we need to add credits to this account.
  • 00:03:38
    Let’s buy a huge amount of product (a hundred thousand dollars’ worth of it) that we plan
  • 00:03:45
    to sell to customers later on, and arrange with the supplier to pay his invoice in thirty
  • 00:03:50
    days. First part: an asset (more specifically inventory) going up. Second part: a liability
  • 00:03:58
    (more specifically accounts payable) going up. Debit inventory, credit accounts payable.
  • 00:04:06
    The bank notifies us that the interest on the loan is due, and we pay it immediately.
  • 00:04:11
    Debit interest expense, credit cash.
  • 00:04:14
    If you credit an asset account like cash, the balance goes down.
  • 00:04:19
    T accounting step four: Let’s see what the
  • 00:04:23
    T account for cash looks like at the end of the period. We started with two hundred thousand
  • 00:04:28
    dollars opening balance (after the company attracted funding), then credited cash when
  • 00:04:34
    buying fixed assets by one hundred thousand dollars, and credited cash when paying the
  • 00:04:39
    interest to the bank by ten thousand dollars. So the ending balance for cash is ninety thousand
  • 00:04:45
    dollars debit balance: 200 minus 100 minus 10. Do this for each of your T accounts, and
  • 00:04:53
    you can then proceed to make a trial balance: a listing of all general ledger accounts along
  • 00:04:58
    with their respective debit or credit balances for the period.
  • 00:05:02
    T accounting in four steps: Debits on the left, credits on the right
  • 00:05:07
    A T account is like a mini balance sheet, for one specific account in the ledger
  • 00:05:14
    For every journal entry, decide first which type of account you need,
  • 00:05:18
    and then which specific account in that category.
  • 00:05:22
    To calculate the ending balance for an account,
  • 00:05:25
    add up the opening balance and the debits and credits for the period.
  • 00:05:30
    Want to learn more about accounting, finance and business? Then subscribe to the Finance
  • 00:05:34
    Storyteller YouTube channel! Thank you.
Tag
  • T accounts
  • accounting
  • debits
  • credits
  • journal entries
  • balance sheet
  • asset accounts
  • liabilities
  • equity
  • revenue