A T-Account is one of the most confusing account tracking devices if you haven't been trained in finance. While people generally use the word “credit” as a good thing, the T-Account uses it to describe something negative. Just as a credit card symbolizes money you owe, the credit column on a T-Account symbolizes money you owe or liabilities against you. Learning and understanding the basics of this credit/debit system will help you better understand how to build a T-Account, thus allowing you to determine how much money you own and how much you owe.
Things You'll Need
- Pencil or Pen
- Calculator (optional)
Draw a large “T” on a piece of paper with a pencil or pen. On the top line, to the left, write “Debit.” On the top line, to the right, write “Credit.” Write the name of the account (e.g. "Expenses," "Assets," etc.) above these and in the middle.
Determine whether each number you put into the chart is a debit or a credit. A debit stands for money you have. A credit stands for something against you. For example, if you bring in $25 in revenue, that $25 goes in the debit column. If you owe someone $25 dollars, that $25 goes in the credit column.
Assign only one entry per line. No amount should be directly across from another account. If you insert an amount in each the debit and credit column, the debit amount sits at the top of the T-account, just below the top of the “T.” The credit amount sit one space lower, as if it's the second amount in the “Credit” column.
Add up the total balance at the bottom of the chart (using a calculator, if needed). If the balance is something you own, such as cash or other revenue, put the balance on the “Debit” side of the chart. If the balance is something you owe, such as a liability, put it on the credit side of the account.
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