Accounting Formulas Flashcards
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Questions and Answers

What is the basic accounting formula?

  • Assets = Liabilities + Owners' Equity (correct)
  • Assets = Liabilities - Owners' Equity
  • Assets = Revenues + Expenses
  • Assets = Liabilities + Cash

    • What is the formula for calculating Assets?

    Liabilities + Common Stock - Dividends + Revenues - Expenses

    Assets increase with a credit.

    False

    Liabilities increase with a credit.

    <p>True</p> Signup and view all the answers

    Common Stock increases with a debit.

    <p>False</p> Signup and view all the answers

    Dividends increase with a credit.

    <p>False</p> Signup and view all the answers

    Revenues increase with a debit.

    <p>False</p> Signup and view all the answers

    Expenses increase with a credit.

    <p>False</p> Signup and view all the answers

    How do you calculate Interest?

    <p>Principal x Rate x Time</p> Signup and view all the answers

    What does a Balance Sheet represent?

    <p>Assets, Liabilities, Owners Equity</p> Signup and view all the answers

    What does an Income Statement include?

    <p>Revenues, Expenses</p> Signup and view all the answers

    What is the formula for Retained Earnings?

    <p>= Beginning Retained Earnings + Net Income - Dividends</p> Signup and view all the answers

    What is Net Income equal to?

    <p>= Revenues - Expenses</p> Signup and view all the answers

    What is the Maturity Value formula?

    <p>Principal + Interest</p> Signup and view all the answers

    How is Debt Ratio calculated?

    <p>= Total Liabilities / Total Assets</p> Signup and view all the answers

    What is Equity Ratio?

    <p>= Total Equity / Total Assets</p> Signup and view all the answers

    What does the Profit Margin Ratio equal?

    <p>= Net Income / Net Sales</p> Signup and view all the answers

    How is Gross Margin Ratio calculated?

    <p>= (Net Sales - Cost of Goods Sold) / Net Income</p> Signup and view all the answers

    What is the definition of Book Value per Common Share?

    <p>= Shareholders' equity applicable to common shares / Number of common shares outstanding</p> Signup and view all the answers

    What does Basic Earnings Per Share equal?

    <p>= Net Income - Preferred Dividends / Weighted-average common shares outstanding</p> Signup and view all the answers

    What is Return on Investment (ROI)?

    <p>= Net Income / Average Total Assets</p> Signup and view all the answers

    How is Working Capital defined?

    <p>= Current Assets - Current Liabilities</p> Signup and view all the answers

    What is Return on Equity (ROE)?

    <p>= Net Income / Average Owner's Equity</p> Signup and view all the answers

    The current ratio is calculated as ______.

    <p>Current Assets / Current Liabilities</p> Signup and view all the answers

    The acid-test ratio is calculated as ______.

    <p>Cash + Short-term investments + Current receivables / Current Liabilities</p> Signup and view all the answers

    What is the formula to calculate Ending Inventory?

    <p>= Beginning Inventory + Merchandise Purchases - Sales</p> Signup and view all the answers

    What is the formula for Return on Investment in the DuPont Model?

    <p>Margin * Turnover = (Net Income / Sales) * (Sales / Average total assets)</p> Signup and view all the answers

    List some examples of Current Assets.

    <p>Cash, Short-term securities, Accounts receivable, Inventories, Prepaid expenses</p> Signup and view all the answers

    What is included in Cash?

    <p>Paper money, Petty cash funds, Undeposited receipts, Checking accounts</p> Signup and view all the answers

    What are Cash Equivalents?

    <p>Commercial paper, U.S. Treasury securities, Bank certificates of deposit</p> Signup and view all the answers

    Inventory Valuation Methods include ______.

    <p>Specific Identification, Weighted-average, FIFO, LIFO</p> Signup and view all the answers

    What does Specific Identification method entail?

    <p>When a unit is sold, the specific cost of the unit sold is added to cost of goods sold.</p> Signup and view all the answers

    How do you calculate Weighted Average?

    <p>Cost of Goods Available for Sale During the Year / Units Available for Sale During the Year</p> Signup and view all the answers

    What is the Last In First Out (LIFO) method?

    <p>Recent Costs --&gt; Costs of Goods Sold &amp; Oldest Costs --&gt; Ending Inventory</p> Signup and view all the answers

    Define Depreciation.

    <p>Allocation of the cost of an asset to the years in which the benefits are expected to be received.</p> Signup and view all the answers

    What are the methods of Depreciation?

    <p>Straight-line, Units of Production, Double Declining Method</p> Signup and view all the answers

    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.

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