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T-Test
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What is a 'T-Test' Loading the player...

A t-test is an analysis of two populations means through the use of statistical
examination; a t-test with two samples is commonly used with small sample
sizes, testing the di erence between the samples when the variances of two
normal distributions are not known.

A t-test looks at the t-statistic, the t-distribution and degrees of freedom to

determine the probability of di erence between populations; the test
statistic in the test is known as the t-statistic. To conduct a test with three or
more variables, an analysis of variance (ANOVA) must be used.

BREAKING DOWN 'T-Test'

A form of hypothesis testing, the t-test is just one of many tests used for this
purpose. Statisticians must use tests other than the t-test to examine more
variables, as well as for test with larger sample sizes. For a large sample size, statisticians use a z-
test. Other testing options include the chi-square test and the f-test.

Statistical Analysis of the T-Test

The formula used to calculate the test is a ratio: The top portion of the ratio is the easiest portion to
calculate and understand, as it is simply the di erence between the means or averages of the two
samples. The lower half of the ratio is a measurement of the dispersion, or variability, of the scores.
The bottom part of this ratio is known as the standard error of the di erence. To compute this part of
the ratio, the variance for each sample is determined and is then divided by the number of
individuals the compose the sample, or group. These two values are then added together, and a
square root is taken of the result.

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Example
For example, consider that an analyst wants to study the amount that Pennsylvanians and
Californians spend, per month, on clothing. It would not be practical to record the spending habits of
every individual (or family) in both states, thus a sample of spending habits is taken from a selected
group of individuals from each state. The group may be of any small to moderate size for this
example, assume that the sample group is 200 individuals.

The average amount for Pennsylvanians comes out to $500; the average amount for Californians is
$1,000. The t-test questions whether the di erent between the groups is representative of a true
di erence between people in Pennsylvania and people in California in general or if it is likely a
meaningless statistical di erence. In this example, if, theoretically, all Pennsylvanians spent $500 per
month on clothing and all Californians spent $1,000 per month on clothing, it is highly unlikely that
200 randomly selected individuals all spent that exact amount, respective to state. Thus, if an analyst
or statistician yielded the results listed in the example above, it is safe to conclude that the
di erence between sample groups is indicative of a significant di erence between the populations,
as a whole, of each state.

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Sampling
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Sampling is a process used in statistical analysis in which a predetermined number of observations

are taken from a larger population. The methodology used to sample from a larger population
depends on the type of analysis being performed, but may include simple random sampling or
systematic sampling.
sampling.

In business, a CPA performing an audit uses sampling to determine the accuracy of account balances
in the financial statements, and managers use sampling to assess the success of the firms marketing
e orts.

BREAKING DOWN 'Sampling'

The sample should be a representation of the entire population. When taking a sample from a larger
population, it is important to consider how the sample is chosen. To get a representative sample,
sample, the
sample must be drawn randomly and encompass the whole population. For example, a lottery
system could be used to determine the average age of students in a university by sampling 10% of
the student body.

Factoring in Systematic Sampling

Systematic sampling uses a random starting point and a periodic interval to select items for a
sample. The sampling interval is calculated as the population size divided by the sample size.
Assume, for example, that a CPA is auditing the internal controls related to the cash account and
wants to test the company policy that checks over $10,000 must be signed by two people, rather
than just one person.

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