How to Balance a T-Account

A T-account is a fundamental analytical tool that accountants use to analyze business transactions. The use of a T-account is particularly helpful in preparing general ledger accounts, which are the ongoing accounts used to monitor the day-to-day financial performance of a company. Because financial reports are based on the information contained in general ledger accounts, the T-account is considered the backbone of a company's accounting system. The exact preparation and balancing of a T-account will depend upon the type of account being analyzed, but all T-accounts are based on the following accounting equation: Assets = Liabilities + Owner's Equity.

Difficulty: Moderately Easy

Instructions

1. Record the debit transaction on the left side of the T-account. For asset and expense T-accounts, record increases in assets or expenses on the debit side of the account. For liability and revenue T-accounts, record decreases in liabilities or revenues on the debit side of the T-account.

2. Record the offsetting credit transaction on the right side of the T-account. For asset and expense T-accounts, record the offsetting decrease in assets or expenses on the credit side of the T-account. For liability and revenue T-accounts, record the offsetting increase in liabilities or revenue on the credit of the T-account.

3. Record the normal balance entry on the appropriate side of the T-account. The normal balance entry is the entry that will balance the T-account, and it is calculated by subtracting decreases from increases. For example, if an asset T-account has a debit increase of $1,500 and a credit decrease of $500, the normal balance equals $1,500 - $500 = $1,000, and it will be entered on the debit (left) side of the account. In this example, the normal balance will be entered in the general ledger as an increase to owner's equity, which fully offsets the increase in assets.

Tips & Warnings

• Remember that T-accounts always have debits on the left and credits on the right. In accounting, debits and credits have different meanings than when people use these words in everyday speech. For accounting purposes, debits are associated with decreases in liabilities while credits are associated with increases in liabilities. Conversely, debits are associated with increases in assets while credits are associated with decreases in assets. The important thing to remember is that debits always go on the left side of the T-account while credits always go on the right of the T-account.

References

• Accounting Principles: T-Accounts

Resources

• Using T-Accounts to Post Journal Entries

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