Definition: A balance column account is basically a more detailed version of a T-account. All accounting systems use them. A balance column account not only has debit and credit columns like the simple T-accounts, but it also typically has columns for dates, descriptions or account names, adjusting journal entry numbers, and you guessed it a column for the account balance.
This is one major advantage to T-accounts. The balance column account always has a running total in the account. Obviously, this would be a little more work to produce by hand, but accounting systems create these, no problem.
What Does Balance Column Account Mean?
In most simple accounting examples a T-account is used to keep track of the debits and credits to a particular account. T-accounts usually have the account name and number across the top of the grid with debits and credits on the left and right columns. These are great for simple examples, but in the real world of accounting more detail is required. You can’t just have a general ledger with a bunch of T-accounts. That is where balance column accounts come into play.
I think it is time to look at an example. Let’s take a look at Awesome Guitar, Inc.’s cash balance column account. There are three transactions posted.
- AWI gets a loan from its bank to buy a delivery truck. The bank let’s AWI borrow $30,000. Cash increases because of the cash infusion from the loan and cash is debited for $30,000.
- AWI buys a new delivery truck for $25,000. This purchase credits the cash account for $25,000.
- AWI pays its employees for the weekly payroll. Cash reduced by $2,000 and credited.
Balance Column Example
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As you can see, the balance is always calculated on the right side column. Balance column accounts are very helpful in practice and give way more detail about the accounts than T-accounts do.