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T-Accounts, Accrual Entries

T-Accounts, Accrual Entries

Author: Evan McLaughlin

Identify a t-account for a given situation involving accrual entries.

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Hey, everyone. Welcome to today's video on T-Account and Accrual Entries. What are we covering today? We're going to review T-accounts. Yes! What is it, and the structure of a T-account. And then we're going to look at application of that T-account using accruals.

So let's look at our T-accounts. What are they, and how are they used? It's a shorthand method of displaying journal entries and balances that's used for recording increases and decreases in specific accounts. It helps to organize the debits and credits. Again, debits being left side, credits being right side, so our T-accounts are a simple method to analyze account activity.

Let's look at the T-account structure. So that's what the T-account looks like, and we had these different attributes that we need to put on to that T-account, first one being account name. Again, that goes at the top. That's our cash, our owner's capital, our revenues. And we have our credits. Remember, right side. So credits go on the right. Debits, that's our left side, so debits go on the left. And then we have the individual transactions that we're detailing. Now those will either go into the debit column or the credit column, depending on the account.

And then finally we have our total. Now remember for the total, if our debits exceed our credits, the difference gets put in the debit column. And if our total credits exceed our total debits, that difference gets put into the credit column. So that's our T-account structure.

T-accounts and accruals-- first transaction. Recording a $5000 sale on account. So which accounts are involved? Well, we made a sale on account. So what do you think that first one is? It's going to be revenue. We made a sale. Revenues are increased with credits, so we're going to put that $5000 in the credit column, leaving us with a total of $5000.

Now what's our other T-account? Since it was a sale made on account, we haven't received the money yet, so that must be an accounts receivable. That's an asset, and assets are increased with debits. So we have a $5000 debit, leaving a total of $5000, and remember we have to perform that quick check at the end. Does our debit equal our credit? It does. We can go on to our next transaction.

So we're going to be recording a $2000 deposit that was received for that $5000 sale that we made on account. So what accounts are involved? Well, we received cash for that accounts receivable. So we got partial payment. So our revenue doesn't change. But we know our cash is impacted, because we've received money. Cash is an asset, so since we received that $2000, we put that in the debit column.

In the other T-account is our accounts receivable. So we have that $5000 from our last transaction, and since accounts receivable is going down, we put $2000 in the credit column. Now we have money in both columns, so since our debit column of $5000 exceeds our credit column of $2000, the difference being $3000 goes on the debit side. Final check. Does the debit equal to credit? It does. Let's go to the next transaction.

Recording of $1000 of rent expense incurred but not paid yet. So which accounts are involved? Well, we incurred an expense, so we have to record expenses incurred on account. So we haven't paid that expense yet. Our revenue isn't impacted. Neither is our accounts receivable, and our cash stays the same. So what's the first T-account we should look at? Rent expense. We incurred an expense, and expenses are increased with debits. So we have a $1000 debit to our rent expense.

And the other T-account, that's our rent payable. So it's money that we owe. It's a liability, and liabilities are increased with credits. So we have a $1000 credit in our rent payable. Last check, rent expense debit of $1000, rent payable credit of $1000. Let's move on to the next transaction.

Recording a $1000 payment for rent expense incurred on account. So now we're going to actually pay that expense that we incurred in the last transaction. So which accounts are involved? Cash that's paid for expense on account. So again, our revenue's not impacted. Accounts receivable isn't impacted. Our rent expense is not impacted, because we already recorded it.

So the first T-account we need to look at is cash. So cash was paid. Because it's an asset, it's reduced by credits, so we put that $1,000 in that credit column. $2000 debit is greater than our $1,000 credit, the difference being $1000. We put that in our debit column.

And finally, rent payable. That's going to be a debit, because we're reducing our liability. And now because we have a $1000 debit and a $1000 credit, there is no balance in the rent payable account. Final check, does debit equal credit? It does, and now we can wrap it up.

So what did we talk about today? We reviewed the T-account structure, account name being at the top, debits on the left, credits on the right. And then we detail our transactions in either column. And most importantly, that total column, if our debits exceed our credits, we put that difference in the debit column, and if our credits exceed our debits, we put that total in the credit column.

I hope everybody enjoyed this video, and I hope to see you next time.