Smaller Ts

Within the main 4 T-accounts, there will be multiple mini t-accounts. For example, under assets, we could have cash, bank account balance, and properties as a few possibilities. Let’s quickly go through a couple of examples.

Source: BC Campus

You take out a $300 loan. This is a liability, you now owe $300 to the bank. But you also have received $300 cash, which is your asset. You credit a T-account under the liabilities (on the liabilities part credit means increase), and you debit assets (on the assets part debit means increase.  As you remember, credit means account FROM, and debit means account TO. You can imagine that you have transferred $300 from one account to another.

You buy yourself a coffee for $4. You just spend this amount, it means you have incurred the expense, and since you paid for it with cash (or a card) your asset account will be affected as well. What do you think, which accounts should you credit and which debit? 

The asset (cash) is the account from, which means that you credit this account, decreasing its value. The expense is, however, an account TO, which you, therefore, should debit. When you debit an expense account, you cause an increase. Increasing your expense as you can observe, decreases your assets.

Double entry or T-accounting is a useful concept for you to understand how finances work. Whenever you are making any financial decision, think of which two accounts are being affected.

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