Accounting T-Chart

Accounting T-Chart

Accounting is a professional practice responsible for the financial oversight of account management, bookkeeping, budgeting, financial analysis, and tax reporting. A student studying toward a degree in accounting, is later eligible to pursue a professional accreditation as a CPA (certified public accountant) after graduation. Accounting practice leaders are qualified to oversee audit preparation with both internal and external accounting recording. Students enrolling in a degree program with a designation in accounting must demonstrate higher mathematical proficiency to exhibit proper quantitative skills for performing accounting equations and financial statement analysis (i.e. ratios). The regulatory aspects of accounting practice are also required for CPA exam preparation. Tutors at 24HourAnswers are qualified subject matter experts in accounting. Our tutors assist students with knowledge acquisition toward completion of their accounting coursework and accreditation objectives.

Here are some insights into the field of Accounting on the topic of ‘Accounting T-Chart.’

In the field of accountancy, the bookkeeping journal entry use of ledger techniques involves what is referred to as the “T account” or “T Chart.” The total balance of the “T” account appearing at the bottom of the record is summary of a single transaction within the bookkeeping ledger.

Denoting the demonstration of accounting journal ledger detail, the “T” is a double-entry account record. The T-Chart exhibits a debit to the left of the center line, and a credit to the right of the record. The double-entry method itemizes transactions based on the account category (i.e., Asset, Liability, Equity, etc.) and its disposition within the record.

Demonstrating transactions within the accounts receivable, inventory, PP&E, cash, and other asset accounts depict a debit increase to the left side of the T-Chart and decrease on the right side of the same ledger account. Conversely, record of liabilities and equity accounts exhibit a decrease to the debit side of the account and increase to the credit side of the account. T-Charts are also used in the reporting of income statement account items (i.e. revenue, expense, profit, loss).   

In business accounting practice, multiple T-Chart account records are used to delineate individual transactions within a firm’s accounting system, including subsidiary accounts of individual credit record. Journal ledger T accounts are therefore a useful method for tracking a range of complex transactional activities a business performs during a period. 

The Chart of Accounts

Showing a list of each account within the general ledger of an accounting system, the chart of accounts applies the T-Chart in the recording of accounts. The chart of accounts affects the trial balance within the periodic reporting of a company’s accounting record, as well as active items (i.e., accounts receivable). The method requires maintenance of a list of account numbers and names corresponding with each transaction detail of the accounts, but does not include other account information (i.e., balances, debits, and credits) found in the trial balance.

A chart of accounts is a folio accounting record of the flow of transactions. The chart of accounts folio record is construed according to a unique numbering system of independently assigned prefixed numbers (i.e. Assets: 1-01) The prefix listing of the numbering system is assigned to the categorical grouping of accounts (i.e. assets, liabilities, equity, income, expenses, etc.) within the bookkeeping record. The numbering system is a useful differentiation of accounts within a company’s ledger, and preparation of the audited financial statement in the future.

The T-Chart is well-suited to the chart of accounts numbering system, offering a quick and simple method of recording a range of transactions and events that have the potential to impact a company. T-accounts are not, however, as useful for large-sized firm accounting recording, as the technique is an internal practice not vital for regulated financial reporting.  Rather, a T-Chart is a useful communication tool that allows for exhibition and narrative of individual transactions within the running balance ledger of a company’s bookkeeping record.

Example of a T-Account

In the following example the T-Chart is used to record an invoiced transaction performed between a landlord and commercial tenant.  In July, the commercial tenant, a merchant received a rent payment invoice for $15,000. The T account exhibits a debit of $15,000 assigned as “rental expense” within the ledger account, and a correspondent credit of $15,000 within the accounts payable record.  The T-Chart transaction record shows the commercial tenant has incurred an expense, as well as a liability coinciding with the payment of the rent. On payment of the rent, the accounts payable liability is eliminated and replaced with a debit to the account, and a corresponding credit to the cash (asset) account record of the ledger, thus decreasing the total balance of the account.

The Contra Account

An extension of the T-Chart concept, the contra account or “opposite” composition of the accounting record offers a more detailed description of banking and other capital transactions. As with the T account, with each journal entry transaction record, there are two accounts affected simultaneously. Therefore, capital transactions not only affect the bank record, but also the contra account and its Balance c/f and Balance b/f closing balance.

The T account allows for “at-a-glance” determination of the account balance. The bank account above exhibits the closing balance. The Balance b/f is the debit balance, the actual closing balance of the bank account. In the example, Balance b/f is greater than the credit side. The Balance c/f entry is used in calculating the closing balance on the debit side.

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Bibliography

“Balancing T Accounts.” Accounting Basics for Students nd.

“Chart of Accounts.” My Accounting Course nd. 

“T Accounts.” PrinciplesofAccounting.com nd. 

“T Accounts Guide: A Guide to Understanding T Accounts.” Corporate Finance Institute. 

“What is a T Account.” AccountingTools 12 Dec 2020.