T Ledgers and Balancing

Last time we talked about debits and credits if you missed that click here

Each transaction must have a debit and credit entry, remember that first transaction for the purchase of a motor vehicle by cash? Let's say that cost $500 then we would debit motor vehicles by $500 and credit cash by $500. Have a look below.
See? Two entries for every transaction. Obviously in an actual business there would be many many accounts, and more complex transactions. But once you understand this basic concept you're well on your way.

At the end of each month the accounts will have to be balanced. To do this simply follow these steps:

1. add up both sides of the accounts
2. place the larger total on the bottom of each side
3. on the smaller side, add a new entry - "balance c/d" with the amount that makes up the total.
   
4. Bring the balance down to the new side and call it "balance b/d"
   

Reading it in words is quite difficult the first time. Check it out in action!

Simple as that! Next time we will be looking at how this all fits together in a business through the use of a trial balance!