T-Accounts: Posting and Balancing the Ledger

What a T-account is

A T-account is the simplest picture of a ledger account. Draw a large letter T, write the account name across the top, and use the two sides:

• the left side is the debit side;
• the right side is the credit side.

Every amount debited to the account goes on the left, every amount credited goes on the right. The difference between the two totals is the account’s balance. Real ledgers have columns for the date, a reference to the journal entry and a running balance, but they record exactly the same information. Teachers use T-accounts because they make it easy to see how a series of transactions builds up a balance.

From the journal to the ledger: posting

Transactions are first recorded in the journal as journal entries. Posting is the step that copies each line of each entry to the account it names:

1. Find the account in the ledger (or draw its T).
2. Copy the amount to the same side as in the entry: a debit line goes to the left of the account, a credit line to the right.
3. Write a reference next to the amount (the date or the entry number) so it can be traced back.
4. Repeat for every line of the entry. A compound entry with three lines is posted to three accounts.

Posting never changes sides. If the journal says “credit Cash 2,000”, the 2,000 goes on the credit side of Cash, whatever kind of account Cash is. The debit and credit rules decide the side when you write the entry; posting only copies it.

Worked example: five transactions

A new consulting business records these entries in its first month (amounts in dollars).

Entries 1 to 4

1. The owner invests 20,000 in cash.
2. The business buys equipment for 5,000: 2,000 in cash, the rest on account.
3. It bills a client 1,500 for services.
4. It pays rent of 800.

Account	Debit	Credit
(1) Cash	20,000
(1) Kim, Capital		20,000
(2) Equipment	5,000
(2) Cash		2,000
(2) Accounts Payable		3,000
(3) Accounts Receivable	1,500
(3) Service Revenue		1,500
(4) Rent Expense	800
(4) Cash		800

Entry 5: a collection

5. The client pays 1,000 of the amount billed.

Account	Debit	Credit
Cash	1,000
Accounts Receivable		1,000

Posting to Cash

Four of the five entries touch Cash. Posted to its T-account, they look like this (the numbers in brackets are the entry references):

Cash: debit side	Cash: credit side
(1) 20,000	(2) 2,000
(5) 1,000	(4) 800
Total 21,000	Total 2,800

Posting to Accounts Receivable

Accounts Receivable: debit side	Accounts Receivable: credit side
(3) 1,500	(5) 1,000
Total 1,500	Total 1,000

Balancing an account

To find the balance of a T-account:

1. Add each side separately.
2. Subtract the smaller total from the larger one.
3. The result is the balance, and it sits on the side with the larger total.

For Cash: 21,000 − 2,800 = 18,200 debit balance. For Accounts Receivable: 1,500 − 1,000 = 500 debit balance, the amount the client still owes. Both are assets, so a debit balance is their normal balance. Equipment has a debit balance of 5,000, Accounts Payable a credit balance of 3,000, Kim, Capital a credit balance of 20,000, Service Revenue a credit balance of 1,500 and Rent Expense a debit balance of 800.

An account with equal totals on both sides has a zero balance: for example, Accounts Payable after the supplier has been paid in full.

Ruling off an account

Many European textbooks, and some US ones, close a T-account at the end of a period by writing the balance on the smaller side so that both sides add up to the same total, then drawing a double line under the totals. The balance is then brought down on the other side as the opening balance of the next period. For Cash, “Balance carried down 18,200” goes on the credit side, both sides total 21,000, and “Balance brought down 18,200” opens the next period on the debit side. This is only a way of presenting the same figure: the balance is still an 18,200 debit.

Checking your T-accounts

• The total of all debit balances must equal the total of all credit balances. Listing them is the trial balance.
• A balance on the side opposite to the normal balance usually means an amount was posted to the wrong side.
• Every amount in a T-account should carry a reference to a journal entry. An amount without one cannot be checked.

Temporary and permanent accounts

Asset, liability and equity accounts are permanent: their balances carry over from one period to the next. Revenue, expense and drawings or dividends accounts are temporary: at year end their balances are transferred to equity by the closing entries, so each new year starts them at zero.

Other conventions

T-accounts are drawn the same way in Spain (cuentas en forma de T; Debe on the left, Haber on the right), France (comptes en T; Débit and Crédit) and Germany (T-Konten; Soll and Haben). German textbooks rule off every account: asset and liability accounts are closed through a closing balance sheet account (Schlussbilanzkonto), and revenue and expense accounts through the profit and loss account (GuV-Konto). Spanish and French courses usually list balances in a trial balance that shows both the sums of each side and the balance.

Practice

Practice items show one entry at a time; try cash and bank and multi-step items and sketch the T-accounts on paper as you go. The terms ledger, posting and balance are defined in the glossary.