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A T-account is a term used to describe the creation of a visual demonstration of something that is happening with an account tracked in the accounting records of an individual or a business. This particular strategy involves the creation of a chart that utilizes the general configuration of a “T” in order to provide a quick and easy snapshot of the relationship between debits and credits associated with that account. Employing this approach can often make it easier to identify when and why an account is out of balance, and help provide some idea of how to move the account back into a more desirable balance between those debits and credits.
The general configuration for a T-account involves providing the name of the account across the top of the formation, with that name written left to right. In the middle of this header, a vertical line is drawn. To the left of this vertical line, all debit entries associated with the account are arranged, usually in chronological order. On the right of the vertical line, all credits that relate to the account and have to do with the same time period as the debits are listed.
As a quick and easy tool, this simple chart approach can make it very easy to ascertain if something is missing from the debit or credit side. For example, if this approach is being used to balance debits and credits related to the household accounting records, listing debits and credits side by side may quickly reveal that while funds have been set aside for all the utilities, not all those funds have been expended. Upon further investigation, it is discovered which utility obligation has not yet been settled for the month, making it possible to balance the T-account by issuing that payment and posting it on the debit side.
Professional accountants often use the T-account strategy as a means of managing what is known as double entry accounting. Doing so helps to reduce the possibility that the debits and credits associated with a specific account in the books are posted properly and that none of the necessary entries have been omitted or overlooked for some reason. From this perspective, the sheer simplicity of the T-account approach can save a great deal of time and effort in tracking down an entry that has not been posted or was posted to the wrong account for some reason, then taking corrective action that brings the affected accounts into balance.
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