Watch Out! Quiz 1 Mistakes to Avoid
Chapters 1 & 2
These are some of the mistakes students make most often. Review them before Quiz 1 so you can catch them before they cost you points.
Jumping straight to debit or credit Tap to reveal
Do not start with debit or credit.
First, identify the accounts. Then determine whether each account increases or decreases. Only after that should you determine whether each change is a debit or a credit.
First, identify the accounts. Then determine whether each account increases or decreases. Only after that should you determine whether each change is a debit or a credit.
Thinking debit means decrease and credit means increase Tap to reveal
Debit means left.
Credit means right.
Whether an account increases or decreases depends on the type of account, not on the word debit or credit by itself.
Credit means right.
Whether an account increases or decreases depends on the type of account, not on the word debit or credit by itself.
Assuming revenue means cash was received Tap to reveal
Revenue means it was earned. It does not automatically mean cash was received.
The other account might be cash or accounts receivable.
The other account might be cash or accounts receivable.
Treating dividends like an expense Tap to reveal
Dividends are not expenses.
Expenses reduce net income. Dividends are distributions to owners and reduce retained earnings.
Expenses reduce net income. Dividends are distributions to owners and reduce retained earnings.
Mixing up accounts payable and notes payable Tap to reveal
accounts payable usually results from buying something on account.
notes payable involves a formal written promise to pay.
notes payable involves a formal written promise to pay.
Believing a balanced trial balance means everything is correct Tap to reveal
A balanced trial balance only tells you that total debit balances equal total credit balances.
It does not prove that every transaction was recorded correctly.
It does not prove that every transaction was recorded correctly.
Thinking buying equipment with cash changes total assets Tap to reveal
Buying equipment with cash does not change total assets.
Equipment increases while cash decreases. One asset replaces another, so total assets remain the same.
Equipment increases while cash decreases. One asset replaces another, so total assets remain the same.
Forgetting that classification affects the current ratio Tap to reveal
Buying equipment with cash can reduce the current ratio even though total assets remain the same.
Cash is a current asset. Equipment is a noncurrent asset. Current assets decrease while current liabilities remain unchanged.
Cash is a current asset. Equipment is a noncurrent asset. Current assets decrease while current liabilities remain unchanged.
Skipping T-accounts Tap to reveal
Do not treat T-accounts like an emergency tool.
Use T-accounts consistently. They help you organize increases and decreases and reinforce the debit and credit structure.
Use T-accounts consistently. They help you organize increases and decreases and reinforce the debit and credit structure.
Memorizing the statements without understanding how they connect Tap to reveal
Think about the financial statements as one connected story.
income statement → net income → retained earnings → balance sheet
Net income affects retained earnings, and ending retained earnings becomes part of stockholders' equity on the balance sheet.
income statement → net income → retained earnings → balance sheet
Net income affects retained earnings, and ending retained earnings becomes part of stockholders' equity on the balance sheet.