Definition: A T-account is a tool that is used to help understand individual ledger accounts and the effects of each transaction. Basically, a T-account is a way to organize and summarize transactions in an individual ledger.
What Does T Account Mean?
T-accounts get their name from their shape. A T-account looks like the letter “t.” Each T-account has a heading at the top identifying what account it belongs to. The body of a T-account is split into two columns. The left side is the debit column and the right side is the credit column. Each T-account is totaled at the bottom. Transactions are posted to each T-account just like writing a journal entry.
Throughout the year as a company makes sales, transactions are entered into its accounting system in the form of journal entries. These entries are then posted to the General Ledger. The general ledger is the main ledger in a company’s accounting system. It summarizes all the transactions from every account that were posted throughout the year. Since most companies have many different accounts, their general ledgers can be extremely long.
Even small companies can have general ledgers that are more than 1,000 pages when printed out. Obviously, it would be pretty difficult to search through 1,000 pages in order to find information about one account. That is why each account has its own individual ledger account. For example, the fixed assets account would have its own ledger account with only transaction involving fixed assets.
Here is an example of two T-accounts posting the purchase of a car. As you can see, the cash account is credited for the purchase of the car and the vehicles account is debited.
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