Recording in Accounts
In this lesson, we will learn the format of the T-Account and how records in the general journal are posted to the ledger accounts. Students will also learn to properly close the capital, asset, liability, income and expense accounts.
Related Lessons:
Format Of T-Account
A T-account has two equal sides with the left side recording debits, and the right side recording credits. It comprises of the following information:
Header – Name of account
This is recorded as a title to the account to identify what this account represents
1st column – Date
On both sides of the T-account, the first column records the date that the transaction occurred. Here we record the day, month and year of the transaction.
2nd column – Details
The second column on both sides of the T-account records the name of the other account affected by this transaction.
3rd column – Amount
The third column on both sides of the T-account records the amount for the transaction. The one on the left records the Debit amount while the one on the right records the Credit account.
Recording In T-Account
To record a transaction in the T-account, we first state the name of the account that we are preparing in the header.
Just like journal recording, we identify which account increases, and which decreases in value, then decide which account to debit and which to credit based on the nature of the accounts.
If the account that we are preparing is to be debited, we record the date of the transaction, the name of the other account affected by this transaction and the amount on the left side of the T-account.
If the account that we are preparing is to be credited, we record the date of the transaction, the name of the other account affected by this transaction and the amount on the right side of the T-account.
Closing T-Accounts
To close a T-account, the total amount on the left and right sides of the account must be equal.
Assets, liability and capital accounts are part of the Statement of financial position of a business. They represent the business financial position at a point in time. Therefore, these accounts are considered permanent accounts of a business. As such, the balance amount is carried forward to the next month for continuation.
For asset, liability, and capital accounts, the side with the smaller total is balanced by recording the difference as Balance Carried Down (Balance c/d) on the last day of the month. This balance is then Brought Down (Balance b/d) on the first day of the next month and is entered on the opposite side of the Balance c/d.
Income and expense accounts are part of the Income Statement and show the business’s performance for that period only. Therefore, their balances are not carried forward into the new financial year.
To close income and expense accounts, the balance on the side with the smaller total is transferred to the Income Statement.