Old SchoolPosted: August 20, 2012
16 Column paper may only be fit for display in an accounting museum, but there is still one thing I learned in school 25 years ago that I use on a regular basis – T accounts. T accounts are a wonderful tool to get to the bottom of complex transactions and follow the numbers. With massive ERP systems handling thousands or even millions of transactions, consolidation systems combing hundreds of legal entities at the touch of a button and payroll systems automatically posting expense, payments and withholdings to dozens of accounts one might think the need for the simple T account is dead, but it seems we need them more than ever today.
I’m guessing there may be a few of you younger ones out there wondering what I am talking about. T accounts look just like they sound:
Debits go on the left and credits on the right. I’ve done analysis with ten or twelve T accounts and debits and credits flowing all over the place, but with the magic of double entry bookkeeping handed to us by Luca Pacioli as long as you make the left (debit) side of all the T accounts equal the right (credit) side then you will always come up with a entries that work.
T accounts can be particularly useful in figuring out complex transactions involving multiple related and unrelated entities. You know you’re an accounting geek when your blood gets pumping standing up to the white board with 10 different colored dry erase markers using each color to signify a separate entry as you map out how the transaction will get booked and flow through your systems.
So, next time your having trouble figuring out how to get something booked, pull out those T accounts and have a little old school accounting fun.