ah much better

today's video is all about t-accounts

I'm gonna explain what they mean how

they're used and what this is all about

hey is James him back with another

episode of accounting stuff today's

video is the third in a series that I'm

creating on accounting basics if you're

new to the channel then welcome don't

forget to hit that big subscribe button

below and click that little bell so you

don't miss a thing

in this video things are about to get

real we're gonna dive deep into T

accounts which are super usable way to

help you visualize where the counter and

to keep a track of all of those debits

and credits we talked about last week

don't forget to watch this one through

to the end because I'm gonna run you

through a whole bunch of useful examples

now who's ready for some T accounting

goodness let's do this to kick things

off I would like to lay out the

definitions of some important terms that

will crop up throughout this video first

what is an account an accounts as a

place where we can record sort and store

all transactions that affect a related

group of items a t account is a visual

representation of an account it is

called a T account simply because it

looks like a t and it looks like a t so

that we can easily distinguish between

all of the debits and credits that

impact it if you're unsure what debits

and credits are you might need to pause

at this point and watch the video that I

posted last week you'll find a link to

it in the description below finally what

is the general ledger it's a place where

business stores a complete record of all

of its financial transactions and

accounts now that I've clarified these

terms let's get back to T accounts in

its most simple form a t account looks

like this

debits go on the Left credits go on the

right if you are having a hard time

remembering the sides you can add a

little D R and C R to the top of the T

account

d R and C are how we accountants write

debits and credits in shorthand

last week I taught you a simple way to

remember which accounts are debits and

credits dealer DEA

our dealer dividends expenses and assets

go on the Left these increase when

debited and decrease when credited

whereas liabilities owner's equity paid

in and revenue go on the right these

increase when credited and decrease when

debited now we will run through a quick

example to illustrate this let's say

your business has a cash account with

$100 in it that's your opening balance

you take out $40 to pay a bill and then

you decide to take out $25 more to buy

some new supplies so you were left with

$35 in the account which we will call

your closing balance balance by the way

is another way of saying total as a

point in time so here your opening

balance means your total cash at the

beginning and your closing balance means

your total cash at the end typically

when you are doing a calculation you

might choose to lay it out like we have

done here however when you're using T

accounts you would show it like this

cash is an asset that's the a in dealer

so debits increase it and credits

decrease it like I said before debits

are on the left and credits are on the

right the final balance is still $35 it

is a different way to present the exact

same information the benefit being that

it is easy to distinguish between all of

the different debits and credits in this

case your closing balance goes on the

left hand side because it happens to be

bigger than zero however if your

supplies had instead cost $65 then you

would be left with negative cash or an

overdraft of $5 so your closing balance

would go on the right hand side instead

now you might be thinking why is all

this necessary I can already tell that

little cow that I did there well this is

a simple example for demonstration

purposes in reality T accounts are way

bigger than this splitting our debits

and credits allows us to spot things

quickly in the general ledger if you're

new to accounting it can be helpful to

jot down T accounts as you're working

through a problem to help you visualize

this all in your head

eventually you might not need to do this

anymore because your brain can just

naturally process this but it takes a

bit of

practice together okay so now I have

another term for you and we touched on

this one last week double-entry

bookkeeping this means that every

accounting entry has an opposite

corresponding entry in a different

account in the context of T accounts

this means that to record a transaction

you will need to write down both sides

of it in at least two T accounts you

might want to pause the video now and

grab a tea or a coffee or something to

get in the zone for this next bear

because I'm about to take you through

some examples of double entry

bookkeeping with T accounts okay let's

get to it now you might be wondering why

I was cleaning those windows at the

start of this video

well I've recently started my own window

cleaning business I'm going to take you

through some of those transactions that

took place in the first month of

operation first of all I the business

owner invested $100 of my own money into

this window cleaning business and in

return the business issued me $100 in

stock then the business decided to take

out a further $200 loan from the bank to

fund its activities soon after receiving

the bank loan the business spent $30 in

cash on window cleaning equipment next

is spent a further $50 on cleaning

supplies the supplier offers 30-day

terms so the payment was made on account

finally the business gets his first

client and makes a hundred and fifty

dollars cleaning their windows but in

doing so it uses half of its cleaning

supplies the first transaction affects

two accounts cash and stock so we will

need T accounts for both of these

categories cash is an asset like I

mentioned earlier it's the a in dealer

so debits increase it I therefore need

to put $100 on the left hand side of the

cash t-account since Deb is always go on

the Left stock is a form of equity which

represents the second Ian dealer so

credits increase it credits always go on

the right so we will need to put $100 on

the right hand side of our new stock

he account moving on in the second

transaction of business takes out a $200

loan from the bank to fund its

activities this transaction affects cash

and loans payable which both need to

increase by $200 we already have a cash

t-account so now we'll be needing

another one for loans payable the cash

part here is straightforward since we've

done this already

we need to debit cash a further $200

loans payable is a form of liability the

L in dealer so credits increase it the

$200 increase in our loans payable is

recorded in our t account by adding it

to the right hand side in transaction

number three the business spends thirty

dollars of its cash on window cleaning

equipment so we need to credit cash by

thirty dollars to decrease it and debit

our new equipment t account by thirty

dollars we record the credit to cash by

adding thirty dollars to the right hand

side of the cash t-account since credits

always go on the right equipment is

another form of asset so the debit to

the equipment goes on the left hand side

next our business spends further $50 on

cleaning supplies which are pays for on

account paying for something on account

means that you agree to pay the supplier

at a later date so for now you need to

hold on to that cash but you need to

recognize a liability since you owe the

supplier for the goods they sold you

supplies are a form of asset so we need

to create a new t account for supplies

and debit the left hand side of it by

$50 we have $50 to the supplier so we

need another t account for accounts

payable accounts payable as a liability

the L in dealer so we need to credit the

right hand side of the t account by $50

is your head hurting yet we only have

one transaction to go so it'll all be

over soon

in our last transaction the business

gets its first client and makes a

hundred and fifty dollars cleaning their

windows using half of its supplies in

the process this one is a bit more

tricky because there are two sides to it

but don't worry we'll work through it

together

first we need to recognize our revenue

we made a hundred and fifty dollars

cleaning the clients windows so

revenue needs to go up by a hundred and

fifty dollars and so does our cash

revenue is the are in dealer so credits

increase it we need to make a new

revenue t account and credit it by a

hundred and fifty dollars on the right

hand side the cash we have made is

recorded as a hundred and fifty dollar

debit to the left hand side of the cash

t-account now there's one more thing we

need to take note of and then our work

is done we said half of our cleaning

supplies were used up on this job so we

can't recognize them as an asset anymore

they now make up our cost of sales which

is a type of expense expense is the

first e in dealer so debits increase it

in our fourth transaction we spent $50

on supplies so if we have used half then

we need to credit supplies by $25 to

decrease them and debit our brand-new

cost of sales T account by $25 to

increase it there we have it our first

month of transactions all laid out

visually in front of us in T accounts

with debits on the left and credits on

the right so there you have it in

accounts a place where we can record

sort and store all financial

transactions

attea cloud is a graphical

representation of an account the general

ledger is a place where business tours a

complete record of all of its financial

transactions and accounts debits on the

Left credits on the right and finally

double entry bookkeeping means that

every financial transaction affects at

least two accounts question of the day

do you find here calcium score if you're

an accountant or bookkeeper do you use

these day-to-day I would love to hear

your thoughts in the comments below if

you enjoyed today's video please press

like it really makes a difference and

don't forget to subscribe I would love

you to come and join us see you in the

next video good luck with those t

accounts and have a great

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