Which of the following statements regarding T accounts is true?
a. The left side of a T account is called the credit side.
b. The right side of a T account is called the debit side.
c. The left side of a T account is called the debit side.
d. Transactions are first recorded in T accounts and then posted to the journal.
The correct answer and explanation is:
The correct answer is c. The left side of a T account is called the debit side.
T accounts are a visual representation of a ledger account used in accounting. The T account is shaped like the letter “T” with a horizontal line separating the account into two sides: the left side and the right side.
- The left side of a T account is known as the debit side. This is where debits are recorded. In double-entry accounting, debits increase assets and expenses but decrease liabilities, equity, and revenue.
- The right side of a T account is called the credit side. This is where credits are recorded. Credits increase liabilities, equity, and revenue but decrease assets and expenses.
When a transaction occurs, it affects at least two accounts. For example, when a company makes a sale, it will record the revenue as a credit and the corresponding increase in cash or accounts receivable as a debit. This ensures that the accounting equation (Assets = Liabilities + Equity) remains in balance.
The statement a. “The left side of a T account is called the credit side” is incorrect because the left side is actually for debits, not credits.
The statement b. “The right side of a T account is called the debit side” is also incorrect. The debit side is on the left, while the right side is for credits.
The statement d. “Transactions are first recorded in T accounts and then posted to the journal” is incorrect as well. Transactions are first recorded in the journal (also known as the book of original entry) and then posted to the T accounts in the ledger.
In summary, T accounts serve as a simple method for visualizing how transactions impact different accounts, with debits on the left and credits on the right.