Case Study - T-Accounts (Ledgers)

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Hi, and welcome back. I'm Justin from think numbers. And in this lecture we're going to be talking about how we get from a general journal to a tee account. So if you recall, we've previously talked about general journals, how we have the date, the reference number, the account name, and we have a debit and credit, which we've just completed recently. And to get now from the T account, you remember in previous lectures, we were talking about the individual transactions, and how the debits on the left and the credits on the right and therefore every transaction, either side of the transaction will need to be go to individual take out, and it will eventually the overall balance sheet and trial balance will actually balance once you've got every transaction in the ticket. So let's go back here.

So what we've actually done He's actually populate all these takeouts and you can see the H. Each one of these accounts represent an individual Chart of Accounts. So in this case, this is the cash bank account. There's a, there's a horizontal and vertical line. And what we've actually done is every single one of these transactions, it's got an individual date. And the actual transaction, whether it's a debit or credit, if it's a debit goes on the left, it's a credit, it goes on the right. The other thing to note is that because this is a brand new business for Smallville, automotive, there wasn't any opening balances.

So Oh, slash b, which represents opening balance would represent the balance at the beginning of the period, which is in this case that we started a brand new business there was zero balance. So we've got zero opening debit balance, because it's an asset, cash, a bank account, and all of the transactions that we've gone through all the cash accounts, whether they've gone debit or credit has been put into this T account, you can see. Right. And what actually we ended up doing at the end is we tally up the debit side and we tally up the credit side. whichever side will have the higher amount will end up being the closing balance, which is what the C slash b represents. In this case, after all these transactions, all the cash coming in from customers or cash injection, or customer payments coming in and all the cash going out for various different expenses and accounts payable and pre payments and everything that went out.

We're left with $20,350 at the end of this period. And by having a date there, you can actually reference it back to the individual general journal transaction. So it's quite easy To navigate and taut back to an individual debt. Now, I've done the same thing across each one of these accounts. And you can see that accounts receivable again had zero opening balance, we had a sale for $5,000. That customer ended up paying us on the 11th.

We had another sale on for $10,000. And that amount is actually the amount that is the closing balance that still hasn't yet been paid. And that's why we've got closing belts and dead closing belts and accounts receivable. done the same thing when we made inventory purchases. And if you just work through all of these, this will be available in the notes by the way for you to review this. So the pre payments, we actually paid that upfront.

The property plant equipment, there were two purchases we made the actual improvements as well as the friend lifta. You notice is probably a couple of other accounts here like accumulated depreciation accumulated amortization. And that actually hasn't been filled in yet, because we haven't actually done our adjusting entries yet. And that will be coming in further lecture will continue to go down. So accounts payable, we did make sure there was no opening balance, we made a number of purchases throughout the period, and we made a payment at the end of the month or close to the end of the month. We were left with a closing balance of 18,250 the unearned revenue, the customer paid a deposit up front and then they ended up we ended up earning that so got transferred to revenue, which you can get a loan to pay for the crane lifter, and then we move on to the owner's equity accounts.

You can see this the share capital, that's the $50,000 that Tom initially put into the business on the first day. That's a credit balance because it's owner's equity. And then it starts to move on to profit and loss account. So here is the sales revenue. You can see that it's an owner's equity account. It's always credit, balance and we had $19,500 worth of sales in that particular period.

Now that there is never an opening balance ever, when it comes to any kind of revenue or expense accounts, so therefore, it's always zero even if you've got been running the business for a number of years in each individual period, almost like always resets to zero, because you're trying to record the performance of that particular period. So what it's what it's about what other expenses have we got here, we've got some some wages expenses that we've remember some of those transactions that we had those individual journals forces that's now been moved across to the wages account, we had a telephone bill, some marketing costs and so on and so forth. And you can see really what I've actually done is I've really just had to go through and debit or credit Individual T account. And then we've now tallied up every single account to come up with a closing balance.

And really that is that is really old T accounts are about. If we go to the worksheet method, that was another method we looked at, it's doing a quite a similar thing to what this method is doing. At the end of the day, this method is still getting the closing belts as what the T account is getting. However, this is the T account method is the basis on which accountants, they use this method accounting systems are built on these fundamental principles. And so this is the method used in practice in saying that the worksheet method is by all means, use it as a quick and easy method to come up with a closing balance and a very quick p&l. Alright, so that's it on T accounts in the next lecture.

We're actually then going to take this now from a T account to a trial balance, and I'll see you in that lecture.

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