INTRODUCTION TO THE T-ACCOUNT

T-accounts have three basic elements. A title, a left side (debit

side) and a right side (credit side).

Title
Debit Side

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Credit Side

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MAKING AN ENTRY
To make an entry in a t-account, put the dollar amount on the
appropriate side (debit or credit). There is no need to use the
dollar sign. It is very important that you use trail numbers to keep
track of the entry.
Cash
1,000

Debit Entry

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(1)

Trail Number

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A CREDIT ENTRY
Here is a sample of a credit entry to the Cash account.
Cash
1,000
(2)

(1)
500

Credit Entry

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TYPES OF ACCOUNTS
There are five basic types of accounts. Assets, liabilities, equity,
revenue and expenses. Assets, liabilities and equity are the
balance sheet accounts.
Assets:

Economic resources (i.e. things of value) owned by a

business that are expected to benefit future operations.

Examples include Car, Computer, and Building.

Liabilities:

Debts or Obligations of a business.

The claims of creditors against the assets of the business.

Examples include Accounts Payable (A/P), and Mortgage

Payable.

Equity:

The excess of assets over liabilities.

The owners worth, or claim on the assets of the business.

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FUNDAMENTAL ACCOUNTING EQUATION

You will need to use the fundamental accounting equation many
times during the course.
Assets = Liabilities + Owners Equity
You can rearrange the formula any way you wish. Another
version of the fundamental accounting equation is:
Owners Equity = Assets Liabilities

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TYPES OF ACCOUNTS CONTINUED

Revenues and expenses are the Income Statement accounts.
Revenue:

The price of goods sold or services rendered during a given

accounting period.

Examples include Legal Fees Earned and Interest Revenue.

Expenses:

The cost of all goods and services used up or expended in the

process of earning revenue during an accounting period.

Examples include Rent Expense, Advertising Expense and

Insurance Expense.

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THE RULES OF DEBIT AND CREDIT

For all transactions:

TOTAL DEBITS = TOTAL CREDITS

The most common mistake students make on exams is total

debits do not equal total credits.

Debits are on the left-hand side, credits are on the right-hand

side. There is no connotation of goodness or badness with
debits or credits.

The chart below is crucial to your understanding of the first

term. Learn these rules so that you can apply them in
practice.
Types of Accounts

Assets

Liabilities

Expenses

Equity

Revenues

Impact of a DEBIT

Increase

Decrease

Impact of a CREDIT

Decrease

Increase

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THE SUPER-T
It is a good idea to use super-T sheets when recording
transactions for a case that requires you to use multiple taccounts. The advantage of using a super-T sheet is that you will
not waste time drawing individual t-accounts in your own
notebook. The layout of the super-T is as follows:

THE BALANCE SHEET ACCOUNTS

Assets

Liabilities & Owners Equity

THE INCOME STATEMENT ACCOUNTS

Expenses

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Revenues

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