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Summary of Accounting Basics
Summary of Accounting Basics
Classification of Accounts
BALANCE SHEET
A list of the assets, liabilities, and owner’s equity of a
business entity as of a specific date, usually at the close of
the last day of a month or a year.
16. Contribution Margin Ratio = Sales-Variable Costs
11. Format for Bank Reconciliation: Sales
Cash balance according to bank statement…. $xxx 17. Break-Even Sales (Units) = Fixed Costs_______
Add: Additions by depositor not on bank Unit Contribution Margin
statement……………………… $xx
Bank errors………………………………... xx xx 18. Sales (Units) = Fixed Costs + Target Profit
$xxx Unit Contribution Margin
Deduct: Deductions by depositor not on
bank statement……………………. $xx 19. Margin of Safety = Sales-Sales at Break-Even Point
Bank errors………………………………. xx xx Sales
Adjusted balance……………………………. $xxx
20. Operating Leverage = Contribution Margin
Cash balance according to depositor’s records.. $xxx Operating Income
Add: Additions by bank not recorded by
depositor………………………………………. $xx 21. Variances
Depositor errors…………………………….. xx xx
$xxx Direct Materials=Actual Price per Unit- x Actual Quantity
Deduct: Deductions by bank not recorded Price Variance Standard Price Used
by depositor…………………………. $xx
Depositor errors…………………………….. xx xx Direct Materials=Actual Quantity Used- x Standard Price
Adjusted balance……………………………… $xxx
Quantity Variance Standard Rate per unit
12. Inventory Costing Methods
Direct Labor = Actual Rate Per Hour – x Actual Hours
1. First-in, First-out (fifo)
Rate Variance Standard Rate Worked
2. Last-in, First-out (lifo)
3. Average Cost
Direct Labor = Actual Hours Worked- x Standard Rate
Time Variance Standard Hours per Hour
13. Interest Computations:
Interest = Face Amount (or Principal) x Rate x Time
Variable Factory Actual Budged Variable
Overhead Controllable=Variable Factory - Factory
14. Methods of Determining Annual Depreciation:
Variance Overhead Overhead for
STRAIGHT-LINE: Cost-Estimated Residual Value
Actual Amount
Estimated Life
Produced
DECLINING-BALANCE: Rate*xBook Value at
Fixed Factory 100% of Normal Std. Fixed
Beginning of Period
Overhead Volume = Capacity-Std. Capacity x Factory
Variance for Amount Produced Overhead
*Rate is commonly twice the straight-line
Rate
rate (1 Estimated Life).
22. Rate of Return on = Controllable Operating Income
15. Cash Provided by Operations on Statement of Cash Investment (ROI) Invested Assets
Flows (indirect method):
Alternative ROI Computation:
Net income, per income statement……………. $xx
Add: Depreciation of plant assets…………….. $xx ROI = Controllable Operating Income x Sales____
Amortization of bond payable discount Sales Invested Assets
and intangible assets…………………… xx
Decreases in current assets (receivables, 23. Capital Investment Analysis Methods:
inventories, prepaid expenses)………… xx 1. Methods that Ignore Present Values:
Increases in current liabilities (accounts A. Average Rate of Return Method
and notes payable, accrued liabilities)… xx B. Cash Payback Method
Losses on disposal of assets and retirement 2. Methods That Use Present Values:
of debt………………………………….. xx xx A. Net Present Value Method
Deduct: Amortization of bond payable B. Internal Rate of Return Method
premium…………………………… $xx
Increases in current assets (receivables, 24. Average Rate = Estimated Average Annual Income
inventories, prepaid expenses)……... xx of Return Average Investment
Decreases in current liabilities (accounts
and notes payable, accrued liabilities).. xx 25. Present Value Index =
Gains on disposal of assets and Total Present Value of Net Cash Flow
retirement of debt…………………….. xx xx Amount to be invested
Net cash flow from operating activities……….. $xx
26. Present Value Factor = Amount to Be Invested___
for an Annuity of $1 Equal Annual Net Cash Flows