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The Accounting Formula Cheat Sheet

Every formula you need, organized the way students actually use it. Searchable, printable, and actually useful during crunch time.

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The Foundation

2 formulas

The Accounting Equation

Assets = Liabilities + Equity

Everything a company owns equals what it owes plus what owners invested. This is the backbone of all accounting.

Expanded Accounting Equation

Assets = Liabilities + Common Stock - Dividends + Revenues - Expenses

Equity breaks down into contributions, withdrawals, and profit/loss. This shows how daily operations affect the balance sheet.

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Income Statement Formulas

6 formulas

Net Sales

Gross Sales - Sales Returns - Sales Allowances - Sales Discounts = Net Sales

The actual revenue after customers return stuff or get discounts.

Cost of Goods Sold (COGS) - Merchandising

Beginning Inventory + Purchases - Ending Inventory = COGS

What you paid for the stuff you actually sold.

Cost of Goods Sold - Manufacturing

Beginning Finished Goods + Cost of Goods Manufactured - Ending Finished Goods = COGS

For manufacturers: the cost of products that left the warehouse.

Gross Profit

Net Sales - Cost of Goods Sold = Gross Profit

Your markup on products before paying for operations.

Operating Income

Gross Profit - Operating Expenses = Operating Income

Profit from core business operations, before interest and taxes.

Net Income

Revenues - Expenses = Net Income

The bottom line. What's left after everything.

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Quick Check: Calculate Gross Profit

Net Sales:$250,000

Cost of Goods Sold:$150,000

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Balance Sheet Formulas

3 formulas

Working Capital

Current Assets - Current Liabilities = Working Capital

Can you pay your bills this year? Positive = yes. Negative = trouble.

✓ Positive number means you can cover short-term obligations

Book Value of an Asset

Asset Cost - Accumulated Depreciation = Book Value

What an asset is 'worth' on your books after accounting for wear and tear.

Total Equity

Common Stock + Retained Earnings + Additional Paid-In Capital - Treasury Stock = Total Equity

The owners' total claim on company assets.

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Cash Flow Formulas

2 formulas

Free Cash Flow

Operating Cash Flow - Capital Expenditures = Free Cash Flow

Cash left over after maintaining and growing the business. This is real money you can use.

Cash Conversion Cycle

Days Inventory Outstanding + Days Sales Outstanding - Days Payables Outstanding = Cash Conversion Cycle

How long your cash is tied up in operations. Shorter = better cash flow.

✓ Lower number means faster cash turnover

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Profitability Ratios

6 formulas

Profit Margin

Net Income ÷ Net Sales × 100 = Profit Margin %

How much profit you keep from each dollar of sales.

✓ Higher % = more profit per dollar of sales

Gross Margin Ratio

Gross Profit ÷ Net Sales × 100 = Gross Margin %

Your markup percentage before operating costs.

✓ Higher % = better pricing power or lower product costs

Return on Assets (ROA)

Net Income ÷ Average Total Assets × 100 = ROA %

How efficiently you use assets to generate profit.

✓ Higher % = assets generate more profit

Return on Equity (ROE)

Net Income ÷ Average Stockholders' Equity × 100 = ROE %

Return earned on shareholders' investment.

✓ Higher % = better return for shareholders

Earnings Per Share (EPS)

(Net Income - Preferred Dividends) ÷ Weighted-Average Common Shares = EPS

Profit allocated to each share of common stock.

Price-Earnings Ratio (P/E)

Market Price per Share ÷ Earnings per Share = P/E Ratio

How much investors pay per $1 of earnings. Higher = growth expectations.

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Quick Check: Calculate ROA

Net Income:$80,000

Average Total Assets:$400,000

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Liquidity Ratios

3 formulas

Current Ratio

Current Assets ÷ Current Liabilities = Current Ratio

Can you pay short-term debts with short-term assets?

✓ 1.5 or higher is generally healthy

Quick Ratio (Acid-Test)

(Cash + Marketable Securities + Accounts Receivable) ÷ Current Liabilities = Quick Ratio

Can you pay bills without selling inventory? Stricter test.

✓ 1.0 or higher is generally healthy

Cash Ratio

(Cash + Cash Equivalents) ÷ Current Liabilities = Cash Ratio

The strictest liquidity test—cash only.

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Quick Check: Calculate Current Ratio

Current Assets:$180,000

Current Liabilities:$120,000

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Solvency Ratios

4 formulas

Debt Ratio

Total Liabilities ÷ Total Assets × 100 = Debt Ratio %

What percentage of assets are financed by debt?

✓ Lower % = less financial risk (industry-dependent)

Debt-to-Equity Ratio

Total Liabilities ÷ Total Equity = Debt-to-Equity Ratio

For every $1 of equity, how much debt do you have?

Times Interest Earned

Income Before Interest & Taxes ÷ Interest Expense = Times Interest Earned

How many times over can you cover interest payments?

✓ Higher = easier to cover interest payments

Equity Multiplier

Total Assets ÷ Total Equity = Equity Multiplier

How much are assets leveraged relative to equity? Used in DuPont Analysis.

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Efficiency Ratios

7 formulas

Inventory Turnover

Cost of Goods Sold ÷ Average Inventory = Inventory Turnover

How many times you sell through your inventory per year.

✓ Higher = inventory sells faster

Days Sales in Inventory

365 ÷ Inventory Turnover = Days Sales in Inventory

Average days inventory sits before selling.

Accounts Receivable Turnover

Net Credit Sales ÷ Average Accounts Receivable = A/R Turnover

How quickly you collect from customers.

Days Sales Outstanding (DSO)

365 ÷ Accounts Receivable Turnover = Days Sales Outstanding

Average days to collect payment from customers.

Asset Turnover

Net Sales ÷ Average Total Assets = Asset Turnover

How efficiently assets generate sales.

✓ Higher = more sales per dollar of assets

Accounts Payable Turnover

Cost of Goods Sold ÷ Average Accounts Payable = A/P Turnover

How quickly you pay suppliers.

Days Payables Outstanding

365 ÷ Accounts Payable Turnover = Days Payables Outstanding

Average days to pay your suppliers.

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Depreciation Formulas

3 formulas

Straight-Line Depreciation

(Asset Cost - Salvage Value) ÷ Useful Life = Annual Depreciation

Same expense every year. Simple and predictable.

✓ Best for: Assets with equal wear over time

Double-Declining Balance

2 × (1 ÷ Useful Life) × Book Value at Beginning of Year = Depreciation

More expense early, less later. Accelerated method.

✓ Best for: Tech, vehicles—assets that lose value quickly

Units-of-Production

(Asset Cost - Salvage Value) ÷ Total Estimated Units × Units This Period = Depreciation

Based on actual usage, not time.

✓ Best for: Machinery, vehicles (mileage-based)

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Quick Check: Calculate Straight-Line Depreciation

Asset Cost:$60,000

Salvage Value:$6,000

Useful Life:6 years

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Inventory Costing Methods

3 formulas

FIFO (First-In, First-Out)

Oldest costs → COGS | Newest costs → Ending Inventory

Sell old stuff first. When prices rise: Lowest COGS, Highest Net Income.

✓ Better for: Financial statement presentation (inventory reflects current costs)

LIFO (Last-In, First-Out)

Newest costs → COGS | Oldest costs → Ending Inventory

Sell new stuff first. When prices rise: Highest COGS, Lowest Net Income, Tax advantage.

✓ Better for: Tax savings in inflationary periods (US only)

Weighted Average Cost

Cost of Goods Available for Sale ÷ Units Available for Sale = Weighted Average Cost per Unit

Average all costs together. Falls between FIFO and LIFO.

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Cost-Volume-Profit (CVP) Analysis

8 formulas

Contribution Margin per Unit

Sales Price per Unit - Variable Cost per Unit = Contribution Margin per Unit

How much each unit contributes to covering fixed costs and profit.

Contribution Margin Ratio

Contribution Margin ÷ Sales × 100 = CM Ratio %

Percentage of each sales dollar available for fixed costs and profit.

Break-Even Point in Units

Fixed Costs ÷ Contribution Margin per Unit = Break-Even Units

How many units you must sell to cover all costs (profit = $0).

Break-Even Point in Sales Dollars

Fixed Costs ÷ Contribution Margin Ratio = Break-Even Sales $

Revenue needed to cover all costs.

Target Profit (Units)

(Fixed Costs + Target Profit) ÷ Contribution Margin per Unit = Units Needed

How many units to reach a specific profit goal.

Margin of Safety

Actual Sales - Break-Even Sales = Margin of Safety

Your cushion—how much sales can drop before you lose money.

Margin of Safety Percentage

Margin of Safety ÷ Actual Sales × 100 = Margin of Safety %

Cushion as a percentage of current sales.

Degree of Operating Leverage

Contribution Margin ÷ Net Income = Degree of Operating Leverage

How sensitive profit is to sales changes. High leverage = big swings.

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Quick Check: Calculate Break-Even Units

Fixed Costs:$50,000

Contribution Margin per Unit:$25

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Manufacturing Cost Formulas

7 formulas

Prime Costs

Direct Materials + Direct Labor = Prime Costs

The primary costs that go directly into products.

Conversion Costs

Direct Labor + Manufacturing Overhead = Conversion Costs

Costs to convert raw materials into finished products.

Total Manufacturing Costs

Direct Materials + Direct Labor + Manufacturing Overhead = Total Manufacturing Costs

Everything spent in the factory.

Cost of Goods Manufactured (COGM)

Beginning WIP + Total Manufacturing Costs - Ending WIP = COGM

The total cost of products completed this period.

Predetermined Overhead Rate

Estimated Total Mfg Overhead ÷ Estimated Allocation Base = Predetermined OH Rate

Used to apply overhead to products before knowing actual costs.

Applied Overhead

Predetermined OH Rate × Actual Activity Level = Applied Overhead

Overhead charged to products based on actual production.

Over/Underapplied Overhead

Applied Overhead - Actual Overhead = Over(+) or Under(-) applied

Did you apply too much or too little overhead?

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Variance Analysis

6 formulas

Price Variance (Materials or Labor)

(Actual Price - Standard Price) × Actual Quantity = Price Variance

Did you pay more or less than expected per unit?

✓ Favorable (F): Actual < Standard | Unfavorable (U): Actual > Standard

Quantity Variance (Materials or Labor)

(Actual Quantity - Standard Quantity) × Standard Price = Quantity Variance

Did you use more or less than expected?

Direct Materials Price Variance

(Actual Price - Standard Price) × Actual Quantity Purchased = DM Price Variance

Difference due to material prices.

Direct Materials Quantity Variance

(Actual Qty Used - Standard Qty Allowed) × Standard Price = DM Quantity Variance

Difference due to material usage.

Direct Labor Rate Variance

(Actual Rate - Standard Rate) × Actual Hours = DL Rate Variance

Difference due to labor rates.

Direct Labor Efficiency Variance

(Actual Hours - Standard Hours Allowed) × Standard Rate = DL Efficiency Variance

Difference due to labor efficiency.

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Capital Budgeting Formulas

4 formulas

Payback Period

Initial Investment ÷ Annual Cash Inflow = Payback Period (years)

How long to recover your investment.

Accounting Rate of Return (ARR)

Average Annual Net Income ÷ Average Investment × 100 = ARR %

Average return on investment as a percentage.

Net Present Value (NPV)

Σ (Cash Flow ÷ (1 + r)^n) - Initial Investment = NPV

The value of future cash flows in today's dollars.

✓ Accept if NPV > 0

Present Value Factor

1 ÷ (1 + r)^n

Used to discount future cash flows. r = rate, n = periods.

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Retained Earnings & Equity

2 formulas

Ending Retained Earnings

Beginning RE + Net Income - Dividends = Ending RE

How much profit the company has kept over time.

Dividend Payout Ratio

Dividends Paid ÷ Net Income × 100 = Dividend Payout Ratio %

What percentage of profit goes to shareholders.

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DuPont Analysis

2 formulas

Three-Part DuPont Formula

ROE = Profit Margin × Asset Turnover × Equity Multiplier

Breaks down ROE into three drivers: profitability, efficiency, and leverage.

Expanded DuPont Formula

ROE = (Net Income ÷ Sales) × (Sales ÷ Avg Assets) × (Avg Assets ÷ Avg Equity)

Same as above, just showing the component ratios explicitly.

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Time Value of Money

4 formulas

Future Value (Single Amount)

FV = PV × (1 + r)^n

What today's money will be worth in the future.

Present Value (Single Amount)

PV = FV ÷ (1 + r)^n

What future money is worth today.

Simple Interest

Interest = Principal × Rate × Time

Basic interest calculation (no compounding).

Loan Payment (PMT)

PMT = PV × [r(1+r)^n] ÷ [(1+r)^n - 1]

Calculate the periodic payment on a loan. PV = loan amount, r = periodic interest rate, n = number of payments.

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Quick Reference: Normal Balances

Account Type	Normal Balance	To Increase	To Decrease
Assets	Debit	Debit	Credit
Liabilities	Credit	Credit	Debit
Equity	Credit	Credit	Debit
Revenues	Credit	Credit	Debit
Expenses	Debit	Debit	Credit
Dividends	Debit	Debit	Credit

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Common Adjusting Entry Patterns

Prepaid Expense Adjustment

DR: Expense

CR: Prepaid Asset

DR: Insurance Expense | CR: Prepaid Insurance

Unearned Revenue Adjustment

DR: Unearned Revenue

CR: Revenue

DR: Unearned Service Revenue | CR: Service Revenue

Accrued Revenue

DR: Accounts Receivable

CR: Revenue

DR: Accounts Receivable | CR: Service Revenue

Accrued Expense

DR: Expense

CR: Payable

DR: Wages Expense | CR: Wages Payable

Depreciation

DR: Depreciation Expense

CR: Accumulated Depreciation

DR: Depreciation Expense | CR: Accumulated Depreciation

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Common Transaction Patterns

Transaction	Debit	Credit
Cash Sale	Cash	Sales Revenue
Credit Sale	Accounts Receivable	Sales Revenue
Purchase Inventory (Cash)	Inventory	Cash
Purchase Inventory (Credit)	Inventory	Accounts Payable
Pay Dividends	Dividends	Cash
Collect Receivable	Cash	Accounts Receivable
Pay Supplier	Accounts Payable	Cash

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