Accounting A - Formula Sheet PDF

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ACCOUNTING DECISIONS A - FORMULA SHEET FORMULAS INCOME STATEMENT Matching Principle: Expenses should be recorded in the period they are incurred to generate profit Revenue recognition principle: The principle that revenue should be recorded when a resource has been earned and not just when cash is received

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Net Profit/Loss = Revenues - Expenses Gross Profit = Sales revenue - COGS

Profit before income tax expense ● Operating Profits = Gross Profit - Operating Expenses ● Net finance costs = Finance costs - Finance Income ○ Gains on acquisition are deducted to give profit before income tax expense

CASH FLOW STATEMENT

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Cash at the end = Cash flows provided (used) by operating activities +/Cash flows provided (used) by investing activities +/- Cash flows provided (used) by financing activities = Net increase (decrease) in cash + cash at the beginning

BALANCE SHEET Historical cost principle: The principle that assets should be recorded and reported at the cost paid to acquire them

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Assets = Liabilities + Equity Equity = Assets - Liabilities + Profits - Dividends Total Assets = Current Assets + Non Current Assets

Assets = Liabilities + Owners Equity + Revenues - Expenses - Dividends STATEMENT OF CHANGES IN EQUITY / RETAINED EARNINGS OTHERS

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Retained earnings (ending balance) = Retained earnings (beginning) +/Net profit / loss - Dividends

Horizontal analysis: ● $ change in Account balance = Current year balance - Prior year balance ● % change in account balance = $ change / Prior year balance Vertical Analysis (%) ● Account Balance / Total Assets (Balance Sheet) ● Account Balance / Net sales or revenue (Y Statement) NOTE: Liabilities > equity = more risky Assets, Expenses & Dividends = Normal debit balance Liabilities, Equity & Revenues = Normal credit balance Free cash flow = cash flow (operating activities) - capital expenditure - dividends

RECEIVABLES TURNOVER RATIO

Receivables Turnover ratio = Credit sales / average receivables ● Average receivables = (Beginning receivables + Ending receivables) / 2 Days in Receivables Ratio = 365 / Receivables Turnover ratio

ALLOWANCE RATIO

Allowance Ratio = Average for Doubtful debts / gross receivables ● Gross account receivables = Net account receivables + Allowance for Doubtful debts

INTEREST EARNT

Interest earnt = Principle x Annual rate of interest x time outstanding

MOVING AVERAGE

Average Unit Cost = Costs of Goods Available for sale / Units Available for sale

INVENTORY TURNOVER RATIO

Inventory Turnover Ratio = COGS / Average inventory Where average inventory is: Beginning Inventory + Ending Inventory / 2

WEIGHTED AVERAGE

Weighted Average Unit Cost = Costs of Goods Available for sale / Units Available for sale

REQUIRED PRODUCTION

Total budgeted production needs = Sales forecast (in units) + Desired ending inventory of finished goods Required production = Total budgeted production needs - Beginning inventory of finished goods Required production = Budgeted sales + (-) Increase (decrease) in finished goods inventory

VARIABLE COST PER UNIT

Variable cost per unit = Change in cost / change in volume

AFTER TAX COST

After tax cost = Pre-tax cost x (1 - tax rate)

AFTER TAX BENEFIT

After tax benefit = Pre-tax receipts x (1 - tax rate)

AFTER TAX INCOME

After tax income = Pre-tax income x (1 - tax rate)

CONTRIBUTION MARGIN (PER UNIT)

Contribution margin (in $) / units sold

CONTRIBUTION MARGIN RATIO

Contribution margin ratio = Contribution margin (in $) / sales (in $)

BREAK EVEN POINT

Break even (units) = Fixed costs / Contribution margin per unit

BREAK EVEN POINT

Break even ($) = Fixed costs / Contribution margin ratio

BREAK EVEN IN A MULTIPLE PRODUCT ENVIRONMENT

Break even in a multiple product environment = Fixed costs / weighted average contribution margin per unit

TARGET PROFIT ANALYSIS (TO REACH A TARGET PROFIT BEFORE TAX)

Sales volume (to reach a target profit before tax) = Fixed costs + target profit (before tax) / Contribution margin

TARGET PROFIT ANALYSIS IN A MULTIPLE PRODUCT ENVIRONMENT (TO REACH A TARGET PROFIT BEFORE TAX)

Sales volume (to reach a target profit) = (Fixed costs + target profit) / weighted average contribution margin per unit

BEFORE TAX PROFIT

Before tax profit = After tax profit / (1 - tax rate)

OPERATING LEVERAGE

Operating leverage = Contribution margin / Net income

PRESENT VALUE OF ANNUITY

PVA = R ( DF An,r )

MANUFACTURING OVERHEAD

Overhead / Cost driver

PAYBACK PERIOD

Payback Period = Original investment / Net annual cash inflows...