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Chapter 9.3® - General Ledger & Chart of Accounts

Actual recording of accounting transactions depends on the type of system being used. Computerized systems store accounts on the computer database while manual systems record accounts on separate pages in a special accounting booklet. The chart of accounts is a list of all accounts used by a company and includes the following type of identification of each class of account:

101 – 199
Asset accounts
201 -299 Liability accounts
301 – 399 Owner’s Capital & Withdrawal accounts
401 – 499 Revenue accounts
501 – 599 Expense accounts


A T-Account is a very useful tool for accountants to figure out the balancing of debits & credits to each account. The T-Account gets its name from its shape because it looks like the letter T.

Account Title
Debit (Left Side) Credit (Right Side)

The format of the T-account includes i) the account title on the top, ii) debit on the left side, iii) and credit on the right side. For instance, take a look at a hypothetical T-account for Cash for a company known as News Corp.

Cash Account
  Dr.   Cr.
Investment by Owner $120,000 Supplies Expense $700
Service Revenue $35,400 Salaries Expense $17,000
Accounts Receivable $2,700 Rent Expense $5,000
    Accounts payable payment $3,800
    Withdrawal by Owner $1000

This type of T-account is widely used by accountants to help solve accounting problems.

Balance of an Account

An account balance is the difference between debits (increases) and credits (decreases) recorded to an account. To determine the balance, follow these steps:

i) Compute the total increases shown on the left side (including the beginning balance).

ii) Compute the total decreases shown on the right side.

iii) Subtract the decreases from the increases to arrive at ending balance.

Cash Account
  Dr.   Cr.
Investment by Owner $120,000 Supplies Expense $700
Service Revenue $35,400 Salaries Expense $17,000
Accounts Receivable $2,700 Rent Expense $5,000
    Accounts payable payment $3,800
    Withdrawal by Owner $1000
Total Increases $158,100 Total Decreases $27,500
Less: Decreases $27,500    
Ending Balance $130,600    

This above Cash account shows total increases of $158,100 and total decreases of $27,500. When the difference between the two is calculated, this leaves us with an ending balance of $130,600 in the Cash account.

Debits and Credits & Double Entry Accounting

The left side of a T-account is called the debit side and is abbreviated as Dr. The right side of a T-account is called the credit side and abbreviated as Cr. Any amounts posted on the left side of the account are debits, while any amounts posted on the right side of an account are credits. The difference between total debits and total credits is the ending account balance. Here are a few more points to learn:

i) When the sum of debits exceeds the sum of credits, the account has a debit balance.

ii) When the sum of credits exceeds the sum of debits, the account has a credit balance.

iii) When the sum of debits equals the sum of credits, the account has a $0 balance.
This method of accounting is known as the double entry accounting and the total sum of all debits MUST equal the sum of all credits. If they do not balance, then your journal entry is not balanced and contains an error.

Double entry accounting means every transaction must be recorded in at least 2 different accounts and the total amount debited must equal the total amount credited. Also, the sum of debit account balances must match with the sum of all credit account balances. The only reason that they would not balance is when there is an error in the journal entry, either the amounts posted are wrong or an account code is missing. Double entry accounting helps to prevent errors by assuring the debits & credits for each transaction equal otherwise the entry would be wrong.

From the above basic accounting equation, it says Assets = Liabilities + Shareholder’s Equity. Assets are on the left side of this equation and liabilities & equity are on right side. Just like any mathematical equation, increases or decreases on one side must have effects on the other side, and consequently must balance the other side. In the below diagram, we show the debit & credit effects for each classes of accounts namely the assets, liabilities & shareholders’ equity.

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