Accounting: Key Concepts and Formulas

• The podcast "C213 Accounting Fast Track: Your WGU Assessment Prep" breaks down core accounting topics, formulas, and strategies.

The 3 Big Ideas of Accounting

• Accounting is the language of business, telling the story through numbers.
• Financial Statements are major players in accounting.
• The Balance Sheet is a snapshot at a point in time, showing what you own versus what you owe.
• The Income Statement shows performance over time, with revenue minus expenses equaling profit.
• The Statement of Cash Flows shows cash movement from operations, investing, and financing.
• "Balance is what you have, Income is what you did, Cash Flow is how you survived."

Must-Know Formulas and Ratios

• Break-Even Formula: Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)
• Basic Accounting Equation: Assets = Liabilities + Equity
• Current Ratio = Current Assets / Current Liabilities, measures liquidity, or the ability to pay bills soon.
• Debt-to-Equity Ratio = Total Liabilities / Total Equity, measures financial leverage, or how much debt is being used.
• Gross Profit Margin = (Revenue - Cost of Goods Sold) / Revenue
• Return on Equity (ROE) = Net Income / Average Equity, indicates how well investors' money is being used to make profits.
• Liquidity = Short-term survival and Leverage = How risky you are.

Key Topics That Always Show Up

• Revenue Recognition: Recognize revenue when earned, not when cash is received.
• Matching Principle: Match expenses to the revenue they helped generate.
• Accrual accounting records revenue/expenses when earned/incurred.
• Cash basis accounting records revenue when cash moves.
• FIFO (First-In, First-Out): Older costs are considered first.
• LIFO (Last-In, First-Out): Newer costs are considered first.
• Weighted Average: Smooths out cost fluctuations.
• Straight-Line Depreciation: (Cost - Salvage Value) / Useful Life
• Straight-line depreciation results in the same expense every year.

How to Attack the Test

• Read the last sentence of the question first to understand what is being solved for.
• Flag anything that is unsure of to avoid getting stuck.
• Eliminate wrong answers aggressively, even when guessing.
• Watch out for tricky timing words.
• Passing is the most important thing.