Essential Accounting Formulas for Financial Statements
Balance Sheet Equations
Assets = Liabilities + Equity
Current Ratio = Current Assets / Current Liabilities
Net Accounts Receivable = Gross Accounts Receivable – Allowance for Uncollectibles
Allowance for Uncollectibles = Gross Receivables x Estimated Percentage
Net Realizable Value (NRV) = Accounts Receivable – Ending Allowance for Doubtful Accounts
Equity and Stock Transactions
Issuing stock increases Equity.
Common Stock Balance = Number of Shares Issued x Par Value per Share
Additional Paid-in Capital (APIC) = Shares Issued x (Issue Price – Par Value)
Total Contributed Capital = Common Stock + Additional Paid-in Capital
Total Stock Issuance Proceeds = Increase in Common Stock + Increase in APIC
Beginning Stockholders’ Equity = Ending Stockholders’ Equity – Change in Equity
Revenue and Profit Calculations
Net Income = Sales Revenue – Expenses
Expenses = Sales Revenue – Net Income
Gross Profit = Net Sales x Gross Profit Margin
Gross Profit Percentage = Gross Profit / Sales Revenue
Cost of Goods Sold (COGS) = Net Sales – Gross Profit
Sales Revenue = Gross Profit + COGS
Net Sales = Gross Sales – Sales Returns – Sales Allowances – Sales Discounts
Retained Earnings and Dividends
Change in Retained Earnings = Net Income – Dividends
Ending Retained Earnings = Beginning Retained Earnings + Net Income – Dividends
Retained Earnings = Total Assets – Total Liabilities – Common Stock
Allowances and Bad Debts
Bad Debt Expense = Required Allowance – Existing Allowance Balance
Ending Allowance for Doubtful Accounts = Beginning Allowance + Bad Debt Expense – Write-offs
Bad Debt Expense = Required Ending Allowance Total – Current Allowance Credit Balance
Allowance for Doubtful Accounts (After Write-offs) = Beginning Balance – Write-offs
Bad Debt Expense = Desired Ending Allowance – Allowance Balance After Write-offs
Debt and Interest Calculations
Interest Expense = Principal x Rate x Time
Accrual Effects: Liabilities increase by the interest amount. Expenses increase by the interest amount. Retained earnings decrease by the interest amount.
Interest Expense on Bonds = Carrying Value x Market Interest Rate
Annual Interest Payment = Face Value x Coupon Rate
Depreciation Methods
Straight-Line Method
Depreciation Expense = (Cost – Residual Value) / Useful Life
Double-Declining Balance Method
Depreciation Rate = 2 x (1 / Useful Life)
Depreciation Expense = Depreciation Rate x Book Value at Beginning of Period
Units-of-Production Method
Depreciation Rate per Unit = (Cost – Residual Value) / Total Estimated Units
Depreciation Expense = Depreciation Rate per Unit x Units Used in Year
Other Key Financial Formulas
Bond Issue Price = Face Value + Premium or Issue Price = Face Value – Discount
FIFO Inventory = LIFO Inventory + LIFO Reserve
Revenue Recognition (Percentage of Completion)
Percentage of Completion = Costs Incurred to Date / Total Estimated Costs
Revenue Recognized = Total Contract Price x Percentage of Completion
Accounts Receivable Analysis
Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable
Average Collection Period = 365 / Accounts Receivable Turnover
Inventory and Equity Calculations
Purchases = COGS + Ending Inventory – Beginning Inventory
Beginning Stockholders’ Equity = Ending Stockholders’ Equity – Change in Assets + Change in Liabilities
Business Combinations & Investments
Goodwill = Purchase Price – Fair Value of Net Assets Acquired
Unrealized Gain or Loss = Fair Value – Cost or Amortized Cost
Investment Value at Year-End (Equity Method) = Initial Investment + (Investor’s Share of Net Income – Dividends Received)