T–accounts, Journal Entries, When Cash Is Debited and Credited

T-accounts

Accountants and bookkeepers often use T-accounts as a visual aid to see the effect of a transaction or journal entry on the two (or more) accounts involved.

To learn more about the role of bookkeepers and accountants, visit our topic Accounting Careers.

We will begin with two T-accounts: Cash and Notes Payable.

07X-t-account-0107X-t-account-02

Let’s demonstrate the use of these T-accounts with two transactions:

  1. On June 1, 2020 a company borrows $5,000 from its bank. As a result, the company’s asset Cash must be increased by $5,000 and its liability Notes Payable must be increased by $5,000. To increase the asset Cash the account needs to be debited. To increase the company’s liability Notes Payable this account needs to be credited. After entering the debits and credits the T-accounts look like this:

07X-t-account-0307X-t-account-04

  1. On June 2, 2020 the company repays $2,000 of the bank loan. As a result, the company’s asset Cash must be decreased by $2,000 and its liability Notes Payable must be decreased by $2,000. To reduce the asset Cash the account will need to be credited for $2,000. To decrease the liability Notes Payable that account will need to be debited for $2,000. The T-accounts now look like this:

07X-t-account-0507X-t-account-06

Introduction to Debits and Credits

Did you know? You can procure our Debits and Credits Certificate of Achievement when you join PRO Plus. To help […]

Normal Balances

When looking at an account in the general ledger, the following is the debit or credit balance you would normally find in […]

Leave a Reply

Your email address will not be published. Required fields are marked *