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Accounting Formulas & Definitions

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Udregninger Acconting
The accounting Equation:
𝐴𝑠𝑠𝑒𝑑𝑠 = πΏπ‘–π‘Žπ‘π‘–π‘™π‘–π‘‘π‘–π‘’π‘  + πΈπ‘žπ‘’π‘–π‘‘π‘¦
Net income
𝑁𝑒𝑑 π‘–π‘›π‘π‘œπ‘šπ‘’ = π‘‘π‘œπ‘‘π‘Žπ‘™ π‘Ÿπ‘’π‘£π‘’π‘›π‘’π‘’ π‘Žπ‘›π‘‘ π‘”π‘Žπ‘–π‘›π‘  − π‘‘π‘œπ‘‘π‘Žπ‘™ 𝑒π‘₯𝑝𝑒𝑛𝑠𝑒𝑠 π‘Žπ‘›π‘‘ π‘™π‘œπ‘ π‘ π‘’π‘ 
When total revenues exceed total expenses, then it is called net income or net profit. When
expenses excees revenues = the result is called net loss.
Retained earning are a percentage of net income and area retained by the company for
reinvestment or debt payment.
Retained earnings = net income of the past reporting periods that has stayed in the economic
The components of retained earnings: (p. 13)
π‘œπ‘π‘’π‘›π‘–π‘›π‘” π‘π‘Žπ‘™π‘Žπ‘›π‘π‘’ π‘œπ‘“ π‘Ÿπ‘’π‘‘π‘Žπ‘–π‘›π‘’π‘‘ π‘’π‘Žπ‘Ÿπ‘›π‘–π‘›π‘”π‘  −⁄+ 𝑛𝑒𝑑 π‘–π‘›π‘π‘œπ‘šπ‘’ − 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 π‘“π‘œπ‘Ÿ π‘‘β„Žπ‘’ π‘π‘’π‘Ÿπ‘–π‘œπ‘‘
= π‘π‘™π‘œπ‘ π‘–π‘›π‘” π‘π‘Žπ‘™π‘Žπ‘›π‘π‘’ π‘œπ‘“ π‘Ÿπ‘’π‘‘π‘Žπ‘–π‘›π‘’π‘‘ π‘’π‘Žπ‘Ÿπ‘›π‘–π‘›π‘”π‘ 
Retained earnings?= Total assets – total liabilities – shared capital?
Receivable turnover and resident period
π‘ π‘Žπ‘™π‘’π‘ 
= π‘‘π‘’π‘Ÿπ‘›π‘œπ‘£π‘’π‘Ÿ
π‘Žπ‘£π‘’π‘Ÿπ‘Žπ‘”π‘’ π‘Ÿπ‘’π‘π‘’π‘–π‘£π‘Žπ‘π‘™π‘’π‘ 
365
= 𝑋 − π‘‘π‘Žπ‘¦π‘ 
π‘Ÿπ‘’π‘π‘’π‘–π‘£π‘Žπ‘π‘™π‘’ π‘‘π‘’π‘Ÿπ‘›π‘œπ‘£π‘’π‘Ÿ
Average receivables
π΄π‘£π‘’π‘Ÿπ‘Žπ‘”π‘’ =
(𝐡𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 + 𝑒𝑛𝑑𝑖𝑛𝑔 π‘π‘Žπ‘™π‘Žπ‘›π‘π‘’)
2
What we get is: EX: it takes a firm X number of days in average to collect its receivables.
Ending Inventory
πΌπ‘›π‘£π‘’π‘›π‘‘π‘œπ‘Ÿπ‘¦ (π΅π‘Žπ‘™π‘Žπ‘›π‘π‘’ π‘ β„Žπ‘’π‘’π‘‘)
= π‘›π‘’π‘šπ‘π‘’π‘Ÿ π‘œπ‘“ 𝑒𝑛𝑖𝑑𝑠 π‘œπ‘“ π‘–π‘›π‘£π‘’π‘›π‘‘π‘œπ‘Ÿπ‘¦ π‘œπ‘› β„Žπ‘Žπ‘›π‘‘ ∗ πΆπ‘œπ‘ π‘‘ π‘π‘Ÿ 𝑒𝑛𝑖𝑑 π‘œπ‘“ π‘–π‘›π‘£π‘’π‘›π‘‘π‘œπ‘Ÿπ‘¦
Cost of goods sold
π‘π‘œπ‘ π‘‘ π‘œπ‘“ π‘”π‘œπ‘œπ‘‘π‘  π‘ π‘œπ‘™π‘‘(π‘–π‘›π‘π‘œπ‘šπ‘’ π‘ π‘‘π‘Žπ‘‘π‘’π‘šπ‘’π‘›π‘‘)
= π‘π‘’π‘šπ‘π‘’π‘Ÿ π‘œπ‘“ 𝑒𝑛𝑖𝑑𝑠 π‘œπ‘“ π‘–π‘›π‘£π‘’π‘›π‘‘π‘œπ‘Ÿπ‘¦ π‘ π‘œπ‘™π‘‘ ∗ π‘π‘œπ‘ π‘‘ π‘π‘Ÿ 𝑒𝑛𝑖𝑑 π‘œπ‘“ π‘–π‘›π‘£π‘’π‘›π‘‘π‘œπ‘Ÿπ‘¦
Cost of goods sold
𝐡𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 π‘–π‘›π‘£π‘’π‘›π‘‘π‘œπ‘Ÿπ‘¦ + π‘π‘’π‘Ÿπ‘β„Žπ‘Žπ‘ π‘’π‘  − 𝑒𝑛𝑑𝑖𝑛𝑔 π‘–π‘›π‘£π‘’π‘›π‘‘π‘œπ‘Ÿπ‘¦ = π‘π‘œπ‘ π‘‘ π‘œπ‘“ π‘”π‘œπ‘œπ‘‘π‘  π‘ π‘œπ‘™π‘‘
Gross profit percentage
πΊπ‘Ÿπ‘œπ‘ π‘  π‘π‘Ÿπ‘œπ‘“π‘–π‘‘ π‘šπ‘Žπ‘Ÿπ‘”π‘–π‘› =
πΊπ‘Ÿπ‘œπ‘ π‘  π‘π‘Ÿπ‘œπ‘“π‘–π‘‘(π‘ π‘Žπ‘™π‘’π‘  − π‘π‘œπ‘ π‘‘ π‘œπ‘“ π‘”π‘œπ‘œπ‘‘π‘  π‘ π‘œπ‘™π‘‘)
π‘ π‘Žπ‘™π‘’π‘ 
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