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    Accounting Formulas 21

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    Nouman Mujahid
    There are 11 basic accounting formulas used to produce a balance sheet and income statement. The accounting equation states that assets equal liabilities plus owner's equity. Formulas are provided to calculate current assets, net fixed assets, total assets, current liabilities, shareholder's equity, and total liabilities and equity for the balance sheet. Additional formulas define gross margin, operating expenses, income from operations, and net income for the income statement. Understanding these 11 formulas provides the essential information needed to generate a company's main financial statements.

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    Download as PDF, TXT or read online from Scribd

    Accounting Formulas 21

    Uploaded by

    Nouman Mujahid
    711 views2 pages
    There are 11 basic accounting formulas used to produce a balance sheet and income statement. The accounting equation states that assets equal liabilities plus owner's equity. Formulas are provided to calculate current assets, net fixed assets, total assets, current liabilities, shareholder's equity, and total liabilities and equity for the balance sheet. Additional formulas define gross margin, operating expenses, income from operations, and net income for the income statement. Understanding these 11 formulas provides the essential information needed to generate a company's main financial statements.

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    There are 11 basic accounting formulas used to produce a balance sheet and income statement. The accounting equation states that assets equal liabilities plus owner's equity. Formulas are provided to calculate current assets, net fixed assets, total assets, current liabilities, shareholder's equity, and total liabilities and equity for the balance sheet. Additional formulas define gross margin, operating expenses, income from operations, and net income for the income statement. Understanding these 11 formulas provides the essential information needed to generate a company's main financial statements.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    711 views2 pages

    Accounting Formulas 21

    Uploaded by

    Nouman Mujahid
    There are 11 basic accounting formulas used to produce a balance sheet and income statement. The accounting equation states that assets equal liabilities plus owner's equity. Formulas are provided to calculate current assets, net fixed assets, total assets, current liabilities, shareholder's equity, and total liabilities and equity for the balance sheet. Additional formulas define gross margin, operating expenses, income from operations, and net income for the income statement. Understanding these 11 formulas provides the essential information needed to generate a company's main financial statements.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    What are the 11 Basic Accounting Formulas?

    (http://www.entrepreneur-starter-kit.com/accounting-formulas.html )
    There are several accounting formulas used to report the financial health of a person or business.
    These formulas are used to produce the Balance Sheet and Income Statement. Also known as
    Profit & Loss Statement.
    Formula 1: The Accounting Equation
    The accounting equation is a vital formula. For it is the root of accounting.
    Worth = Assets Liabilities
    The accounting formulas needed to produce the Accounting Balance Sheet (The accounting
    Balance Sheet is one of the main financial statements of a business. The other financial
    statements are the Income Statement and Cash Flow Statement. The worth of an entity is
    reported in the balance sheet. The balance sheet is a rearrangement of the accounting equation.
    http://www.entrepreneur-starter-kit.com/accounting-balance-sheet.html ) are:
    Formula 2: Current Assets
    Current assets are the sum of assets that will convert into cash in less than 12 months.
    Current Assets = Cash + Accounts Receivable + Inventory + Prepaid Expenses
    Formula 3: Net Fixed Assets
    Net fixed assets are the book value of fixed assets.
    Net Fixed Assets = Fixed Assets @ cost Accumulated Depreciation
    Formula 4: Total Assets
    The sum of all assets
    Total Assets = Current Assets + Other Assets + Net Fixed Assets
    Formula 5: Current Liabilities
    Bills due within 12 months of the Balance Sheet date.
    Current Liabilities = Accounts Payable + Accrued Expenses + Current Portion of Debt + Income
    Taxes Payable
    Formula 6: Shareholders Equity
    Shareholders equity is the value of the company to its owners. Also called net worth.
    Shareholders Equity = Capital Stock + Retained Earnings

    Page 1 of 2

    Formula 7: Total Liabilities & Equity


    This is the total obligation plus worth of the entity.
    Total Liabilities & Equity = Current Liabilities + Long-Term Debt + Shareholders Equity
    The next accounting formulas are needed to produce the Income Statement. Also called the
    Profit & Loss Statement.
    Formula 8: Gross Margin
    The left over amount after cost of goods sold are taken away from net sales.
    Gross Margin = Net Sales Cost of Goods Sold
    Formula 9: Operating Expenses
    The sum of expenses paid for developing and selling the product or service.
    Operating Expenses = Sales & Marketing + Research & Development + General &
    Administrative
    Formula 10: Income From Operations
    Net profit from the product or services sold.
    Income From Operations = Gross Margin Operating Expenses
    Formula 11: Net Income
    Net income is all income minus total expenses and costs.
    Net Income = Income From Operations + Interest Income Income Taxes
    In summary, the above accounting formulas are all a person will need to generate the two main
    financial statements. However, to fully explore the financial health of person or business
    knowledge of accounting ratios are required.

    Page 2 of 2

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