Questions and Answers
What is the basic accounting formula?
What is the formula for calculating Assets?
Liabilities + Common Stock - Dividends + Revenues - Expenses
Assets increase with a credit.
False
Liabilities increase with a credit.
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Common Stock increases with a debit.
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Dividends increase with a credit.
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Revenues increase with a debit.
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Expenses increase with a credit.
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How do you calculate Interest?
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What does a Balance Sheet represent?
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What does an Income Statement include?
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What is the formula for Retained Earnings?
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What is Net Income equal to?
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What is the Maturity Value formula?
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How is Debt Ratio calculated?
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What is Equity Ratio?
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What does the Profit Margin Ratio equal?
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How is Gross Margin Ratio calculated?
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What is the definition of Book Value per Common Share?
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What does Basic Earnings Per Share equal?
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What is Return on Investment (ROI)?
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How is Working Capital defined?
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What is Return on Equity (ROE)?
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The current ratio is calculated as ______.
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The acid-test ratio is calculated as ______.
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What is the formula to calculate Ending Inventory?
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What is the formula for Return on Investment in the DuPont Model?
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List some examples of Current Assets.
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What is included in Cash?
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What are Cash Equivalents?
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Inventory Valuation Methods include ______.
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What does Specific Identification method entail?
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How do you calculate Weighted Average?
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What is the Last In First Out (LIFO) method?
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Define Depreciation.
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What are the methods of Depreciation?
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Study Notes
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)
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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.