accounting equations

a list of all the equations we go over

Accounting Equation

Accounting Equation

Assets = Liabilities +Equity

Return On Assets (ROA)

Net income / Average total assets

Average total assets = (Beginning total assets + Ending total assets) / 2

Debt Ratio

Total liabilities / Total assets

Straight-Line Method

(Cost - Residual value) / Useful Life

Book Value

Depreciable asset’s cost - Accumulated depreciation

Interest

Principal x Interest rate x Time

Current Ratio

Total current assets / Total current liabilities

Gross Profit

Net Sales Revenue - Cost of Goods Sold

Net Cost of Inventory

Purchase Cost of Inventory - Purchase Returns and Allowances - Purchase Discount + Freight In

Operating Income

Gross Profit - Operating Expenses

Gross Profit Percentage

Gross Profit / Net Sales Revenue

Ending Merchandise Inventory

Number of Units On Hand x Unit Cost

Cost Of Goods Sold

Number of Units Sold x Unit Cost

Weighted-Average Cost Per Unit

Cost of Goods Available For Sale / Number of Units Available

Inventory Turnover

Cost of Goods Sold / Average Merchandise Inventory

Average Merchandise Inventory

(Beginning Merchandise Inventory + Ending Merchandise Inventory) / 2

Days’ Sales in Inventory

365 Days / Inventory Turnover

Cash Ratio

(Cash + Cash Equivalents) / Total Current Liabilities

Percent-of-Sales Method

Net Credit Sale x % = Bad Debts Expense

Percent-of-Receivables Method

Target Balance = Ending balance of accounts receivable x %

Bad Debts Expense = Target balance - Unadj. credit balance of Allowance for Bad Debts

Or

Bad Debts Expense = Target balance + Unadj. debit balance of Allowance for Bad Debts

Aging-of-Receivables Method

Bad Debts Expense = Target balance - Unadj. credit balance of Allowance for Bad Debts

Or

Bad Debts Expense = Target balance + Unadj. debit balance of Allowance for Bad Debts

Acid-Test Ratio

(Cash including cash equivalents + Short-term investments + Net current receivables) / Total current liabilities

Accounts Receivable Turnover Ratio

Net credit sales / Average net accounts receivable

Days’ Sales in Receivables

365 Days / Accounts receivable turnover ratio