All Accounting Formulas PDF 218: A Comprehensive Guide
If you are looking for a handy reference of all accounting formulas in PDF format, you have come to the right place. In this article, we will provide you with a list of 8 accounting formulas that every business should know, along with examples and explanations. You can also download a PDF file of these formulas for your convenience.
Accounting formulas are essential for calculating various financial ratios, metrics, and indicators that help you monitor your company's performance and make informed decisions. Whether you are a business owner, a manager, an accountant, or a student, knowing these formulas can help you understand the financial health and profitability of any business.
Here are the 8 accounting formulas that we will cover in this article:
Net income equation
Break-even point equation
Cash ratio equation
Profit margin equation
Debt-to-equity ratio equation
Cost of goods sold equation
Retained earnings equation
Let's dive into each one of them and see how they work.
1. Accounting equation
The accounting equation is the most basic and fundamental formula in accounting. It shows the relationship between the assets, liabilities, and equity of a business at any point in time. The accounting equation is also known as the balance sheet equation because it forms the basis of the balance sheet report.
The accounting equation is:
Assets = Liabilities + Equity
This means that the total value of the assets owned by a business must equal the total value of the claims against those assets, which are either liabilities (debts) or equity (owner's investment).
For example, if a business has $100,000 in assets, $40,000 in liabilities, and $60,000 in equity, the accounting equation will be:
$100,000 = $40,000 + $60,000
This shows that the business has enough assets to cover its liabilities and equity.
2. Net income equation
The net income equation is another important formula in accounting. It shows how much profit or loss a business has generated over a period of time, usually a month, a quarter, or a year. The net income equation is also known as the income statement equation because it forms the basis of the income statement report.
The net income equation is:
Net income = Revenue - Expenses
This means that the net income of a business is equal to the difference between its total revenue (sales) and its total expenses (costs) incurred during a period.
For example, if a business has $50,000 in revenue and $30,000 in expenses for a month, its net income will be:
$50,000 - $30,000 = $20,000
This shows that the business has earned $20,000 in profit for that month.
3. Break-even point equation
The break-even point equation is a useful formula for determining how many units of a product or service a business needs to sell in order to cover its fixed and variable costs and start making a profit. The break-even point equation is also known as the cost-volume-profit analysis because it helps analyze the relationship between costs, sales volume, and profit.
The break-even point equation is:
Break-even point = Fixed costs / (Selling price - Variable cost per unit)
This means that the break-even point of a business is equal to its fixed costs divided by its contribution margin per unit. The contribution margin per unit is the difference between the selling price and the variable cost per unit of a product or service.
For example, if a business has $10,000 in fixed costs per month, sells each unit for $100, and incurs $40 in variable costs per unit, its break-even point will be:
$10,000 / ($100 - $40) = 166.67 units
This shows that the business needs to sell at least 167 units per month to break ec8f644aee