quiz 1 notes - Quiz 1 Pointers This document should help...

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Quiz 1 Pointers This document should help you as part of your study for Quiz 1. However, use it in conjunction with other available resources. 1. Be very familiar with the rules of debits and credits . You can use the video lecture from Prof Lazarus and me titled, “Debits and Credits” for guidance as well as your text. Debits & Credits: http://www.youtube.com/watch?v=s0qnS665z3Q 2. Be very familiar with rules for normal balances. Now regarding remembering the normal balances, I have illustrated it with an example below using Cash and Accounts Payable. Example: Account Cash. Guideline: What do you do (debit or credit) to increase the Cash Account? Answer: Debit. Therefore, the normal balance for Cash is a debit. So, since Cash is an Asset account, all Asset accounts have a normal debit balance So, you can use this guideline for any account. Now, let's use another account, Say Accounts Payable. Guideline: What do you do (debit or credit) to increase the AP Account? Answer: Credit So, since AP is a Liability account, all Liability accounts have a normal credit balance. Of course, to apply this guideline one must know the rules of debits and credits. 3. Be very familiar with the process of creating a journal entry when given a transaction. Eg: Purchased Office Supplies on Account for $200. In order to create a journal entry, you must go through 4 steps as listed below. Step 1; What specific accounts are affected? Answer: Office Supplies and Accounts Payable Step 2: What categories or families do the above accounts belong to? Answer: Office Supplies is an Asset; Accounts Payable is a Liability Step 3: As a result of the above transaction, do each of the two accounts listed increase or decrease as a result of this transaction?
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Answer: Office Supplies increases by $100 as you now own $100 of Office Supplies that you did not own before. Accounts Payable also goes up by $100 as you now owe $100 that you did not owe before. Step 4: Using the rules of debits and credits which of the accounts listed in Step 1 answer do you debit and which one do you credit?
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