ACC202 Formulas

Expanded Basic Accounting Equation

Assets = Liabilities + Common Stock + Revenues - Expenses - Dividends

Which financial statement does the Accounting Equation belong to?

Balance Sheet

Formula for Net Income or Loss

Net Income = revenues - Expenses

Which statement shows Net Income?

Income Statement

Formula for Ending Retained Earnings

Beginning retained earnings + Net Income - Dividends

Which statement shows Ending Retained Earnings

Statement of Retained Earnings

Formula for Return on Assets

Net Income / Average Total Assets

What does ROA measure?

Profitability, Higher ROA is better

Debt Ratio

Total Liabilities / Total Assets

Straight Line Depreciation

(Purchase Price - Salvage Value) / Useful life

Profit Margin

Net Income / Net Sales

Current Ratio

Current Assets / Current Liabilities

What does Current Ratio Measure? Should be between 1.5 and 3.0.

Ability to pay off short term debts,

Raw Materials Used

RM Beginning + RM purchased - RM ending

Total Manufacturing Costs

Direct Materials + Direct Labor + Factory Overhead

COGM Formula

Beginning WIP + Total Manufacturing Costs - Ending WIP

COGS Formula

Beginning finished goods + COGM - Ending Finished Goods

Raw Materials Inventory Turnover

RM Used / Average RM Inventory

Day’s Sales in RM Inventory

(Ending RM Inventory / RM Used) x 365