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Accounting Workbook For Dummies Cheat Sheet

Accounting Workbook For Dummies Cheat Sheet - dummies
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Cheat Sheet
Accounting Workbook For Dummies
Cheat Sheet
Accounting Workbook For Dummies
By John A. Tracy
As a business manager, taking care of your company’s accounting needs is top priority. Correctly
preparing a nancial statement involves knowing all the information that needs to appear on the
statement. Making a pro t keeps you in business, so follow the nancial statements closely, make
adjustments if needed, and follow some basic rules for presenting accounting information to your
business’s managers.
Formulas and Functions for Financial Statements
As the business manager, you’re in control of your business’s accounting needs, so you need a
strong understanding of the ins and outs of nancial statements, including what goes on them and
in what order. If you don’t prepare them correctly, they won’t re ect a true picture of your
Accounting Workbook For Dummies Cheat Sheet - dummies
business’s nancial status. Keep the following important rules and points in mind as you prepare
and use your business’s nancial statements.
Accounting equation
Assets = Liabilities + Owners’ Equity
Liabilities and owners’ equity are the two basic types of claims on the assets of an entity. The twosided nature of the accounting equation is the basis for double entry accounting that records both
sides of the entity’s transactions — what is received and what is given in the economic exchange.
Rules for debits and credits
Use the following gure for credit and debit basics:
Financial e ects of revenues and expenses
Revenue = Asset increase (debit) or Liability decrease (debit)
Expense = Asset decrease (credit) or Liability increase (credit)
Connections between income statement and balance sheet
Sales revenue → Cash and Accounts receivable
Cost of goods sold expense ← Inventory
Operating expenses → Cash
Operating expenses ← Prepaid expenses
Accounting Workbook For Dummies Cheat Sheet - dummies
Operating expenses → Accounts payable
Operating expenses → Accrued expenses payable
Depreciation expense ← Fixed assets
Interest expense → Accrued expenses payable
Income tax expense → Accrued expenses payable
Bookkeeping cycle
Transactions (and certain other events) → Original Entries in Journals → Postings in General
Ledger Chart of Accounts → End-of-Period Adjusting Entries → Preparation of Financial
Statements, Tax Returns, and Internal Accounting Reports → Closing Entries at End of Year
Making Accounting Adjustments to Reach Pro t Potential
Having your business reach a pro t is important; if it doesn’t, sooner or later the business will fail.
As a business manager, you want to keep a close eye on the nancial statements and make the
necessary (and legal) accounting adjustments to your nancial records as needed. These helpful
tips can help you make the necessary adjustments to your business’s net income, eye two di erent
pro t analysis models, and communicate the reports to your managers.
Adjustments to net income for determining sash ow from
operating activities
Accounts receivable, inventory, and prepaid expenses are operating assets used in the pro tmaking process.
Accounts payable and accrued expenses payable are operating liabilities used in the pro t-making
Operating asset increases and operating liability decreases are negative adjustments
(decrease cash ow from operating activities)
Accounting Workbook For Dummies Cheat Sheet - dummies
Operating asset decreases and operating liability increases are positive adjustments (increase
cash ow from operating activities)
Depreciation and amortization expenses are positive adjustments (increase cash ow from
operating activities)
Cardinal Rule: Make all cash ow adjustments to net income; do not simply add back
depreciation and amortization, which could be seriously misleading.
Two pro t analysis models for management decision making
Contribution margin minus xed expenses model:
Sales price
Less variable costs per unit
Equals contribution margin per unit
Times annual sales volume, in units
Equals total contribution margin
Less xed operating expenses
Equals operating pro t
Excess of sales over breakeven model:
$3,000,000 annual xed operating expenses ÷ $40 contribution margin per unit = 75,000 units
breakeven point (volume)
Annual sales volume for year, in units
Less annual breakeven volume, in units
Equals excess over breakeven, in units
Times contribution margin per unit
Equals operating pro t
Guidelines for internal accounting reports to managers
Accounting Workbook For Dummies Cheat Sheet - dummies
When you’re preparing nancial information for your business’s managers, follow these tips:
Follow the organizational structure (responsibility accounting)
Orient your report based on whether organization unit is a pro t center or a cost center
Know the mind of the manager
Highlight signi cant factors and deemphasize non-signi cant factors
About the Book Author
John A. Tracy is a former accountant and professor of accounting. He is also the author of Accounting For