6.3.2: T-Accounts
Just like the BaSIS framework is divided into a green and a yellow ‘side’, each of the buckets (accounts) on the BaSIS framework have a green and a yellow side, that is, they can have green and yellow tickets posted into them, and these tickets could be kept separate by colour within the bucket.
You already know that if you put a green ticket into a green bucket you are increasing its balance and if you put a yellow ticket into a green bucket you are decreasing its balance. The opposite is true of yellow buckets.
T-accounts are a shorthand way of drawing the green and yellow side of each bucket. The green side is always on the left and is known as the debit (DR) side and the yellow side is always on the right hand side and is known as the credit (CR) side.
You already know that if you put a green ticket into a green bucket you are increasing its balance and if you put a yellow ticket into a green bucket you are decreasing its balance. The opposite is true of yellow buckets.
T-accounts are a shorthand way of drawing the green and yellow side of each bucket. The green side is always on the left and is known as the debit (DR) side and the yellow side is always on the right hand side and is known as the credit (CR) side.
Color Accounting and T-Accounts
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Students of accounting often have a love/hate relationship with what are colloquially known as “T-accounts”. They get their name because historically (ie. before computers), accounting was done in books and later on cards where a ledger account was set out in a format that looked a bit like the capital letter T.
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Every account in the general ledger was represented like this. They were tagged (and sorted, if cards) according to whether they belonged to Assets, Liabilities, Equity, Income or Expenses.
The debiting effects of transactions were all written onto the debit side (always the left-hand side) and the crediting effects onto the credit side (always the right-hand side) of the affected accounts. And of course there were always two effects (debit and credit) to represent each financial transaction. This simple organizing system, derived by Pacioli over 500 years ago, made it easier to manually calculate the balance for each of the general ledger accounts.
Color Accounting makes T-accounts simple because of the green and yellow coding for debit and credit and because you can draw the T-accounts within the relevant element of the BaSIS Framework: assets, liabilities, equity, income, or expenses.
The debiting effects of transactions were all written onto the debit side (always the left-hand side) and the crediting effects onto the credit side (always the right-hand side) of the affected accounts. And of course there were always two effects (debit and credit) to represent each financial transaction. This simple organizing system, derived by Pacioli over 500 years ago, made it easier to manually calculate the balance for each of the general ledger accounts.
Color Accounting makes T-accounts simple because of the green and yellow coding for debit and credit and because you can draw the T-accounts within the relevant element of the BaSIS Framework: assets, liabilities, equity, income, or expenses.
When you are learning accounting, much of your instruction will revolve around the General Ledger (GL) and the infamous T-accounts. A T-Account is simply a representation of one of the accounts within the General Ledger (which contains ALL of the accounts). However, these seemingly simple learning tools can be problematic if used without the context of the 'big picture' - the GL.
We have developed a proprietary model of the GL which we call the BaSIS Framework™, derived from its components, the Balance Sheet and the Income Statement.
This lesson puts those infernal T-accounts within the context of the General Ledger, which also just happens to be a great big T-account. It is this very context that is so often missing in accounting classes, and so makes it difficult for the student to see the big picture.
[Duration 4:56]
We have developed a proprietary model of the GL which we call the BaSIS Framework™, derived from its components, the Balance Sheet and the Income Statement.
This lesson puts those infernal T-accounts within the context of the General Ledger, which also just happens to be a great big T-account. It is this very context that is so often missing in accounting classes, and so makes it difficult for the student to see the big picture.
[Duration 4:56]