Explanation of T Account, Debit and Credit, and Double Entry Accounting System

In this accounting lecture, we will speak about T-accounts, accounting debits and credits, accounting balances and double entry accounting method.

All accountants know several terms that make basis for any accounting technique. Such terms are T-account, debit and credit, and double entry accounting program. Of course, these terms are studied by accounting students all more than the globe. However, any business person, whether or not an investment banker or a smaller home business owner, will benefit from figuring out them as nicely. They are very easy to grasp and will be beneficial in most business enterprise conditions. Let us take a closer appear at these accounting terms.

T-Account

Accounting records about events and transactions are recorded in accounts. An account is an individual record of increases and decreases in a certain asset, liability, or owner's equity item. Appear at accounts as a place for recording numbers associated to a particular item or class of transactions. Examples of accounts may perhaps be Money, Accounts Receivable, Fixed Assets, Accounts Payable, Accrued Payroll, Sales, Rent Expenditures and so on.

An account consists of 3 parts:

- title of the account

- left side (known as debit)

- correct side (known as credit)

Given that the alignment of these parts of an account resembles the letter T, it is referred to as a T account. You could draw T accounts on a piece of paper and use it to preserve your accounting records. However, these days, rather of having to draw T accounts, accountants use accounting software program (i.e., QuickBooks, Microsoft Accounting, Peachtree, JD Edwards, Oracle, and SAP, among other people).

Debit, Credit and Account Balance

In account, the term debit means left side, and credit indicates perfect side. These are abbreviated as Dr for debit and Cr for credit. Debit and credit indicate on which side of a T account numbers will be recorded.

An account balance is the difference in between the debit and credit amounts. For some varieties of accounts debit indicates an raise in the account balance, when for other people debit means a reduce in the account balance. See beneath for a list of accounts and what a debit to such account means:

Asset - Improve
Contra Assets - Lower
Liability - Decrease
Equity - Decrease
Contribution Capital - Lower
Revenue - Decrease
Expenditures - Raise
Distributions - Enhance

Credits to the above account types will mean an opposite result.

Double Entry Accounting System

A double entry accounting method calls for that any amount entered into the accounting records is shown at least on two different accounts. For example, when a customer pays money for your item, an account would show the cash received in the Cash account (as a debit) and in the Sales account (as a credit). All debit amounts equal all credit amounts provided the double-entry accounting was correctly followed.

Getting a double entry accounting technique has positive aspects over typical, 1-sided systems. One of such positive aspects is that the double-entry program helps identify recording errors. As I mentioned, if one quantity is entered only as soon as in error, then debits and credits will not balance and the accountant will know that one or extra entries were not posted totally. Note, but, that this check will support spot errors, but will not identify all cases of errors. For example, equal debits and credits will not identify an error when an quantity was posted twice, but was posted to wrong accounts. Maintain this in thoughts when analyzing causes of errors in accounting records.