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T-Accounts, Cash Entries

T-Accounts, Cash Entries

Author: Evan McLaughlin

Determine a t-account for a given situation involving cash entries.

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"T-Accounts, Cash Entries"

Source: Instrumental “Drops of H2O ( The Filtered Water Treatment )" by J.Lang (feat. Airtone),” Creative Commons,

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Hey everyone, and welcome to our video today on T-accounts and cash entries. So what are we going to cover today? Well, we're going to talk about T-accounts. It's exciting. We're going to look at what is a T-account, the structure of a T-account. And then we're going to take that and do an application with cash.

So let's start with our T-accounts. What are they? They are a shorthand method of displaying journal entries and balances within individual accounts.

So how are they used? How do we use them? They're used in recording increases and decreases in specific accounts within our different account groups. And it's a way to organize our debits and credits within our specific accounts, so to record those increases and decreases. And remember, debits are the left side and credits are our right side.

So taking that information, let's look at what a T-account structure is, what a T-account looks like. So that's the T-account there on the right side. So then we have these different attributes that we need to put into that T-account.

So starting with that account name, where does that go? That goes on the top. So this is where we would put cash, liabilities, if its owner's capital, if it's revenue. So that's where our account name, right on top.

Then we have credit. Remember, credits are our right side. So credits go on the right. And we have debits. That's our left side. That goes on the left.

So since we're detailing transactions, the transactions are going to go in that middle section. So any transactions we have would be listed there. And then the final attribute, our total. So where do we put our total?

Well, if our total debits exceed our total credits, then we put the difference between that on the debit side. Now, if our total credits exceed our total debits, we put the difference between those two on the credit side. So that's the T-account structure.

So using that, let's do some application. So we have a transaction. We're creating a business with a $10,000 cash investment. So what accounts are we going to use? What accounts do we need T-accounts for?

We need cash, because we're receiving a cash investment. So cash is contributed by owner. That's a clue right there. So the first T-account we need is cash. And we know that when cash is increased, because it's an asset, that's a debit. So we're going to have a $10,000 debit into our cash T-account.

Now, what's the other account that's affected? Owner. So owner's capital, a contribution made by owners. And we know that that's increased with a credit, so we're going to put $10,000 on the credit side. Total credits are $10,000.

And what's our last check? Do our total debits equal our total credits? $10,000 debit, $10,000 credit. And we're good to move on.

Next scenario. What's the transaction? We're going to record a $5,000 cash sale. So what accounts are impacted? Cash is received for a sale. So owner's capital from the last example stays the same. It's not impacted.

Cash. There's that cash from the last transaction. And we know cash is impacted, because we've received $5,000 more. So because we've received more cash, our cash goes up. So our total cash now is $15,000.

So we need one other T-account. What do you think it's for? It's for revenue, because we made a sale. So we know that revenue is increased by credits. So because we made a sale, we have a $5,000 credit to our revenue.

So what's our last check? Does our debit of $5,000 equal our credit of $5,000? It does. And we're good to go.

Next example. Recording a $1,000 cash payment for salaries expense. So we're paying cash for salaries expense. Which accounts? Cash payment for an expense.

So our owner's capital stays the same. Our revenue stays the same. Neither of those are impacted.

Our cash is impacted again, so we have the $10,000 and the $5,000 from our last two transactions. But this time, cash is going out the door, so we need to reduce cash with a credit of $1,000. That leaves us with a $14,000 debit in our cash.

One final T-account. What's involved? Expenses. So we have salaries expense. And our expenses are increased with debits. So we have a $1,000 debit to our salaries expense.

One last check. Does that $1,000 debit to our salaries expense equal that $1,000 credit? It does. And we are good to go.

So let's recap. What did we talk about? We talked about the T-account structure. What goes on top? That's our account name. Cash, owner's capital, revenue.

We looked at debits go on the left side. Credits go on the right side. And that helps us to organize all of the different transactions, whether it's a debit or a credit to that individual account.

And then we looked at our totals. Now remember, if the total credits exceed the total debits, that total goes on the credit side. But if the total debits exceed the total credits, that goes on the debit side.

Hope everybody enjoyed this video. And I hope to see you next time.