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1,001 Accounting Practice Problems For Dummies Cheat Sheet

This document provides formulas and definitions for key accounting and financial concepts. It includes formulas for the balance sheet, income statement, statement of cash flows, inventory, depreciation, gross margin, operating income, retained earnings, and other ratios used to analyze financial statements such as current ratio, quick ratio, asset turnover ratio, return on equity, debt to equity ratio, contribution margin, return on capital, break-even point, and assigning overhead costs. The document is a cheat sheet for accounting practice problems.

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409 views

1,001 Accounting Practice Problems For Dummies Cheat Sheet

This document provides formulas and definitions for key accounting and financial concepts. It includes formulas for the balance sheet, income statement, statement of cash flows, inventory, depreciation, gross margin, operating income, retained earnings, and other ratios used to analyze financial statements such as current ratio, quick ratio, asset turnover ratio, return on equity, debt to equity ratio, contribution margin, return on capital, break-even point, and assigning overhead costs. The document is a cheat sheet for accounting practice problems.

Uploaded by

Apphia Park
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1,001 Accounting Practice Problems

For Dummies Cheat Sheet


Balance sheet formula
Assets – liabilities = equity (or assets = liabilities + equity)

This basic formula must stay in balance to generate an accurate balance sheet.
This means that all accounting transactions must keep the formula in balance. If
not, the accountant has made an error.

Retained earnings formula


Beginning balance + net income – net losses – dividends = ending balance

Income statement formula


Revenue (sales) – expenses = profit (or net income)

Keep in mind that revenue and sales may be used interchangeably. Profit and
net income may also be used interchangeably. The income statement is also
referred to as a profit and loss statement.

Gross margin
Sales – cost of sales

Gross margin is not a company’s net income or profit. Other expenses, such as
selling, general, and administrative (SG and A) expenses, are subtracted to
arrive at net income.
Operating income (earnings)
Gross profit – selling, general, and administrative (SG and A) expenses

Statement of cash flows formula


Beginning cash balance + cash flow sources (uses) from operations + cash flow
sources (uses) from financing + cash flow sources (uses) from investing = ending
cash balance

This formula adds cash sources and subtracts cash uses.

Inventory formula
Beginning inventory + purchases – cost of sales = ending inventory (or beginning
inventory + purchases – ending inventory = cost of sales)

Net sales formula


Gross sales – sales discounts – sales returns and allowances

Book value of fixed (depreciable) assets


Original cost – accumulated depreciation

Straight line depreciation


(Original cost – salvage value) / number of years in useful life

Salvage value is the dollar amount that the owner can receive for selling the
asset at the end of its useful life.
Financial Statement Formulas
After you create financial statements, you need some tools to analyze a
company’s results. Following are the most frequently used formulas to analyze
financial statements. Get familiar with them so that you can analyze statements
with confidence.

Components of work-in-process
Direct materials + direct labor + factory overhead applied

Work-in-process (WIP) represents cost incurred in production for partially


completed goods. WIP is a subaccount within inventory. When goods are
completed, they are moved to finished goods (another inventory account).

Current ratio
Current assets ÷ current liabilities

The current ratio illustrates how easily a company can cover its current bills.

Quick ratio
(Current assets less inventory) ÷ current liabilities

The quick ratio excludes inventory from current assets. The rationale is that
inventory is the current asset that will take the longest time to convert into cash.
Other current assets, such as collecting accounts receivable, may be converted
into cash more quickly.

Asset turnover ratio


Revenue (or sales) ÷ assets
This ratio explains how much profit a company generates for every dollar of
assets.

Return on equity
Net income ÷ equity

This ratio explains how much profit a company generates for every dollar of
equity.

Debt to equity ratio


Debt ÷ equity

This ratio measures what percentage of a firm’s total capitalization is debt.


Capitalization refers to all funds raised by the company to operate the business.

Contribution margin
Sales less variable costs

Contribution margin represents the amount that will be used to cover fixed costs.
Any dollars remaining after paying fixed costs is considered profit.

Return on capital
Operating profit ÷ capital

Capital is similar to equity. It represents funds raised to operate a business.


Operating profit refers to profit generated from normal business activity.

Break-even formula
Sales – variable costs – fixed costs = $0 profit
The break-even formula calculates the level of sales that will generate a profit of
$0.

Formula to assign overhead costs


Total overhead costs incurred ÷ activity level

Overhead costs, such as a factory’s utility costs, can’t be directly traced to a


product. Instead, overhead costs are allocated based on an activity level. The
activity level chosen should impact the amount of overhead costs incurred. For
example, the number of machine hours used drives machinery repair costs.
Machine hours should be the activity level for machine repair costs.

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