Final answer:
To create a cash T-account, draw a T shape on a paper, label the left column 'Debit' for cash receipts, and the right 'Credit' for cash payments.
Add all debits to the starting balance and subtract the credits to arrive at the ending cash balance. This process is similar to determining a current account balance in international trade.
Step-by-step explanation:
To do a cash T-account, you start by drawing a T shape on a sheet of paper. Label the left side of the T as 'Debit' and the right side as 'Credit'. Record all cash receipts in the debit column and all cash payments in the credit column. To compute the ending cash balance, you need to first determine the beginning balance.
Then, you add totals from the debit side (cash receipts) to the beginning balance and subtract the totals from the credit side (cash expenditures). The resulting figure is your ending cash balance.
An example to illustrate this: if your beginning cash balance is $5,000, you'd write this as the first number under Balance.
Let's say you have cash receipts totaling $2,000 and cash payments totaling $1,500. Your ending cash balance would be computed as follows: $5,000 (beginning balance) + $2,000 (total receipts) - $1,500 (total payments) = $5,500 (ending balance).
This concept can also apply to calculating current account balances when dealing with international trade.
For instance, if you're summing up columns for Exports, Imports, and Balance in a trade scenario, the final balance number after adding exports and subtracting imports from the initial balance would be the current account balance.