If you know what a T account or ledger account is? Do you know how to close one?
I’m Thomas Harwood and Welcome to The Accounting Student, where we create free and short videos
so that you can learn about accounting.
Today’s video is looking at how to close a T account.
Before we look at how to close a T account. You should first know what a T account is
and how to open a T account. You can learn about these two things in the links above.
Let’s move on to closing a T account.
Every business from time to time will “balanced off” their accounts.
Balancing off can be described as the process of obtaining a balance for any given account
that shows how much it has or how much it owes.
Balancing off is usually performed by most businesses on a weekly or monthly basis and
the bigger the business the more regular the T accounts are balanced off. For example,
Public limited companies are most likely to balance off their accounts at the end of each
day.
Let's now have a look at How to close a T account for an asset.
At the end of a trading week, the business bank account for Louise looked like this.
The first step is to add up both sides of the account and insert the biggest total as
the total for both sides. In this case the debit side totals to £3,000 and the credit
side totals to £900. The bigger side is £3,000 so £3,000 is inserted to the total of both
sides.
The second step is to subtract the smaller total from the larger total to find the difference.
In this example, it will be £3,000 - £900 = £2,100.
Step three is to enter the difference (or known as closing balance) to the side with
the smaller total and this should now make both sides total to the same. So we add £2,100
to the credit side of the bank account and this should have a narrative of balance c/d
(which means balance carried down). If you total both sides they should now total to
£3,000 which means your balance is mostly likely to be correct.
The fourth and final step is to enter the opening balance below the total on the opposite
side for the next period. Therefore in this example we will put £2,100 on the debit side
of the bank account and this should have a narrative of balance b/d (which means balance
brought down).
Let's now have a look at How to close a T account for capital.
At the end of the month, the capital account for Louise looked like this.
First you add up both sides of the account and insert the biggest total as the total
on both sides. In this case the debit side totals to £100 and the credit side totals
to £1,000. The bigger side is £1,000 so £1,000 is inserted into the total of both
sides.
The second step is to subtract the smaller total from the larger total to find the difference.
In this example, it will be £1,000 - £100 = £900.
Step three is to enter the difference to the side with the smaller total. So we add £900
to the debit side of the capital account and this should have a narrative of balance c/d.
If you total both sides they should now total to £1,000 this means your balance is correct.
The final step is to enter the opening balance below the total on the opposite side for the
next period. Therefore we will put £900 on the credit side of the capital account and
this should have a narrative of balance b/d.
Let's now have a look at How to close a T account for a liability.
At the end of another week, a creditor account called Equip LTD for Louise looked like this.
The first step is to add up both sides of the account and insert the biggest total as
the total on both sides. The debit side totals to £300 and the credit side totals to £1,700.
The bigger side is £1,700 so £1,700 is inserted to the totals of both sides.
The second step is to subtract the smaller total from the larger total to find the difference.
In this example, it will be £1,700 - £300 = £1,400.
Next you enter the difference to the side with the smaller total and this should make
both sides total to the same. So we add £1,400 to the debit side of the Equip LTD account
and this should have a narrative of balance c/d. If both sides total to £1,700 this means
your balance is correct.
The fourth and final step is to enter the opening balance below the total on the opposite
side for the next period. Therefore in this example we will put £1,400 on the credit
side of the Equip LTD account and this should have a narrative of balance b/d.
So that was demonstrating how to close a T account. If you enjoyed it, press the like
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Thanks for watching we’ll see you next time.