T accounts explained

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

摘要

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.

心得

  • 📌 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.

时间轴

  • 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.

思维导图

Mind Map

常见问题

  • 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.

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  • 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.
标签
  • T accounts
  • accounting
  • debits
  • credits
  • journal entries
  • balance sheet
  • asset accounts
  • liabilities
  • equity
  • revenue