Key Difference – T Account vs Ledger
The key difference between T account and ledger is that T account is a graphical representation of a ledger account whereas ledger is a set financial accounts. Therefore, a ledger can also be interpreted as a collection of T accounts. Understanding T accounts and ledger is essential for obtaining a better knowledge regarding accounting book keeping process. The introduction of new accounting software has made the preparation of T accounts and ledger more convenient and less time-consuming.
What is a T Account?
A T account is a graphic representation of a ledger account. As the name suggests, it takes the shape of letter ‘T’, and the name of the account is placed above the T (sometimes along with the account number). Debit entries are entered in the left side of the T and credits are entered to the right of the T. The total balance for each T account is shown at the bottom of the account. T accounts are prepared along with the ‘double entry principle’ in accounting which states that every transaction results in equal and opposite effects in minimum two different accounts; one as a debit entry and the other as a credit entry.
E.g. ANK Ltd. purchases goods worth of $2,000 on cash from WOM Ltd. This results in an increase in inventory due to the new purchases and a reduction in cash due to the payment. Thus the following entries will be entered into respective T accounts, i.e. Purchases A/C and Cash A/C respectively.
Purchases A/C DR $2,000
Cash A/C CR $2,000
T accounts were used when accounting records were prepared manually. At present, accounting book keeping is largely done electronically, thus a column format is used instead of a T account. However, the concept remains unchanged.
What is a Ledger?
A ledger is known as a collection of financial accounts. Ledger contains all the T accounts according to their class of accounts. Companies prepare different types of ledgers to record various transactions as follows.
This is the ledger where all sales made to customers are recorded. Sales ledger is a very important ledger as it records the transactions of the core business activity.
Purchases ledger reports all the funds paid on purchasing. This ledger is crucial for companies that conduct manufacturing or trading operations.
This is the principal set of accounts where all transactions conducted within the financial year are recorded. General ledger contains all the debit and credit entries of transactions and is separated with classes of accounts. There are five main types of classes or accounts as follows.
Long term and short term resources that provide economic benefits
E.g. Property, cash and cash equivalents, accounts receivables
Long term and short term financial obligations that should be settled
E.g. Loan repayment, interest payable, accounts payable
Securities that represent the owners interest in the company
Funds received as a result of conducting business transactions
E.g. Revenue, investment income
Economic costs that a business incurs through its operations to earn revenue
E.g. Cost of sales, marketing expenses, administration expenses
A subsidiary ledger is a detailed sub set of accounts that contains transaction information. For large scale businesses where many transactions are conducted, it may not be convenient to enter all transactions in the general ledger due to the high volume. In that case, individual transactions are recorded in subsidiary ledgers and the totals are transferred to an account in the general ledger. Subsidiary ledgers can include purchases, payables, receivables, production cost, payroll and any other account type.
What is the difference between T account and ledger?
T Account vs Ledger
|T account is a graphical representation of a ledger account.||Ledger is a set financial accounts.|
|One T accounts contain one type of an account.||Ledger contains many T accounts.|
Summary – T Account vs Ledger
The difference between T account and ledger is not a significant one since they are closely related. A business conducts various transactions and maintains numerous records that are different to one another. Furthermore, accounts should be categorized in different classes in accordance with accounting principles which is assisted by T accounts and ledger. The preparation of T accounts and ledger are made convenient through the use of accounting software.
1.”General Ledger.” Investopedia. N.p., 26 Nov. 2014. Web. 21 Mar. 2017.
2.”Subsidiary Ledgers.” Subsidiary Ledgers. N.p., n.d. Web. 21 Mar. 2017.
3.”Types of Ledger.” Principles of Accounts for GCE O Level. N.p., n.d. Web. 22 Mar. 2017.
4.”What is a T account? – Questions & Answers.” AccountingTools. N.p., n.d. Web. 22 Mar. 2017.