What is a T account?

A T account is a graphic representation of a general ledger account. The name of the account is placed above the "T" (sometimes along with the account number), while debit entries are depicted to the left of the "T" and credits are shown to the right of the "T". A number of T accounts are typically clustered together to show all parts of accounting transactions. The T account is a fundamental tool in double entry accounting, since you need to see how one side of an accounting transaction is reflected in another account.

In the following example of how T accounts are used, a company receives a $10,000 invoice from its landlord for the July rent. The T account shows that there will be a debit of $10,000 to the rent expense account, as well as a corresponding $10,000 credit to the accounts payable account. This initial transaction shows that the company has incurred an expense as well as a liability to pay that expense.

The bottom set of T accounts show that, a few days later, the company pays the rent invoice. This results in the elimination of the accounts payable liability with a debit to that account, as well as a credit to the cash (asset) account, which decreases the balance in that account.

The T account has two primary uses, which are:

• To teach accounting, since it gives a more clear representation of the flow of accounting transactions.
• To clarify more difficult accounting transactions, for the same reason.

The T account concept is especially useful when compiling more difficult accounting transactions, where you need to see how a business transaction impacts all parts of the financial statements.

For day-to-day accounting transactions, T accounts are not used. Instead, you create journal entries in accounting software (see the accounting journal entries topic). Thus, T accounts are only a teaching and account visualization aid.

Related Topics

Accounting journal entries
Adjusting entries
Debits and credits
Double entry accounting
How do I write an accounting journal entry?