CLEP REA Financial Accounting ~ Formulas

Basic acc equation

Assets = liabilities + owner's equity

Business entity

the financial statements report about a single business. Every business gets its own set of books. Acc. do not mix in the owners personal financial information.

Current

"current" liabilities are those debts that must be paid within one year or one operating cycle, whichever is longer.

Current Ratio

Current Assets/current liabilities = current ratio

Debt Ratio

Total liabilities/total assets = debt ratio

Double Entry acc

Recording business transactions twice: once to show where the $ came from and another to show where the $ went

Equity Ratio

Total equity/assets = equity ratio

Book value of a long-lived asset

Purchase price - accumulated depreciation = Book Value

Ending Owner's Equity Formula

Equity-begging + net income - withdrawal = equity-ending

Gross Profit

Sales - costs of goods sold = gross profit

Income Statement Formula

Sales - cost of goods sold = gross profit

gross profit - expenses = net income

Cash Flow Statement Formula

Cash from Operations

+Cash from Investing activities

+Cash from Financing Activities

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= Total change in cash

+Cash - Beginning of period

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= Cash - end of period

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Bank Reconciliation Formula

Balance per bank Balance per cash account

+deposits not shown + Interest income

- outstanding checks - Bank Fees

+/- bank errors +/- biz errors

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= Adjusted bank balance = adjusted book balance

Ending owner's equity

equity-beginning + NI - withdrawal = equity-ending

Gross profit

Sales- COGS = GP

Income Statement Formula

Sales - COGS = GP

GP - expenses = NI

% of accounts receivable method

The method of estimating the allowance for uncollectible accounts

A\R x Est % = what allowance should be

- what allowance is = adjustment

% of sales method

The method of estimating uncollectable accounts expense.

Sales x est % = uncollectble accounts expense

Quick Ratio

Total quick assets / total current liabilities = quick ratio

Day's sales in A/R formula

average net A/R/one day's sales = days sales in A/R

Discount on a note

Future value of a note x discount% x years (or fraction there-of) = discount

Interest formula

Loan amount (or principal) x rate % x years (or fraction there-of) = interest

One day's sales formula

net sales on account/365 = one day's sales

Days in inventory formula

365/inventory turnover

GP

Sales- COGS

GP%

GP/Total Sales

Double declincing balance depr

book value at beg of year x 2 / estimated life