Accounting Formulas Flashcards

Accounting Basics

• Basic Accounting Equation: Assets = Liabilities + Owners' Equity (A = L + OE)
• Assets Breakdown: Assets = Liabilities + Common Stock - Dividends + Revenues - Expenses

Accounting Principles

• Assets: Increase with a debit
• Liabilities: Increase with a credit
• Common Stock: Increase with a credit
• Dividends: Increase with a debit
• Revenues: Increase with a credit
• Expenses: Increase with a debit

Financial Statements

• Balance Sheet: Contains Assets, Liabilities, and Owners' Equity (includes stock and retained earnings)
• Income Statement: Contains Revenues and Expenses
• Retained Earnings: Calculated as Beginning Retained Earnings + Net Income - Dividends

Key Financial Formulas

• Net Income: Net Income = Revenues - Expenses
• Maturity Value: Maturity Value = Principal + Interest
• Debt Ratio: Debt Ratio = Total Liabilities / Total Assets
• Equity Ratio: Equity Ratio = Total Equity / Total Assets
• Profit Margin Ratio: Profit Margin Ratio = Net Income / Net Sales
• Gross Margin Ratio: Gross Margin Ratio = (Net Sales - Cost of Goods Sold) / Net Income

Earnings Metrics

• Book Value per Common Share: Calculated as Shareholders' equity applicable to common shares / Number of common shares outstanding
• Basic Earnings Per Share: Basic EPS = (Net Income - Preferred Dividends) / Weighted-average common shares outstanding
• Return on Investment (ROI): ROI = Net Income / Average Total Assets
• Working Capital: Working Capital = Current Assets - Current Liabilities
• Return on Equity (ROE): ROE = Net Income / Average Owner's Equity

Liquidity Ratios

• Current Ratio: Current Ratio = Current Assets / Current Liabilities
• Acid-Test Ratio: Acid-Test Ratio = (Cash + Short-term investments + Current receivables) / Current Liabilities
• Difference: Current Ratio includes Merchandise Inventory while Acid-Test Ratio does not.

Inventory Management

• Ending Inventory Calculation: Ending Inventory = Beginning Inventory + Merchandise Purchases - Sales
• Inventory Valuation Methods: Includes Specific Identification, Weighted-average, FIFO, and LIFO
• Specific Identification: Assigns specific costs to units sold
• Weighted Average: Averages the cost of all items in inventory
• First In First Out (FIFO): Oldest costs are used for Cost of Goods Sold, recent costs for ending inventory
• Last In First Out (LIFO): Recent costs are used for Cost of Goods Sold, oldest for ending inventory

Depreciation

• Definition: Allocation of an asset's cost over its useful life; a contra-asset account
• Methods: Includes Straight-Line, Units of Production, and Double Declining Balance (Accelerated Method)

Test your knowledge of essential accounting formulas with these flashcards. Each card covers a key concept, helping you understand the relationships between assets, liabilities, and owner's equity. Perfect for students and professionals looking to reinforce their accounting fundamentals.