Cheat Sheet Page 1
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Test of Profitability Chapter 6: Sales Revenue & Accounts Receivables Return on equity (ROE) Net Income / Average Stockholders′ Equity Return on assets (ROA) Net Income + Interest Exp / Average Total Assets Financial leverage π΄π£π πππ‘ππ π΄π π ππ‘π / π΄π£π πβπππβππππππ ′ πΈππ’ππ‘π¦ Earnings per share (EPS) Net Income Avg No. of Shares of Common Stock Outstanding Quality of income Cash Flows from Operating Activities / Net Income Profit margin Net Income / Net Sales Revenue (Operating Revenues) Gross Profit πππππ π ππ£πππ’π − πΆππ π‘ ππ πΊππππ ππππ Gross profit margin π ππ£−πΆππΊπ Serves as paying expense and future savings π ππ£πππ’π Asset turnover ratio Net Sales Revenue / Average Total Assets Fixed asset turnover ratio Net Sales Revenue Average Net Fixed Assets Measures operating efficiency Tests of Liquidity Current ratio Quick ratio (Acid Test) Current Assets / Current Liabilities Quick Assets Current Liabilities The safety margin to meet L Net Credit Sales Receivable turnover ratio Inventory turnover (T/O) ratio SR liquidity & operating efficiency Average Net Receivables π·ππ¦π ππ π ππππ π΄π£π π΄ππ ππ π ππ£(π·ππ¦π ) = π ππ£ π‘π’ππππ£ππ πππ‘ππ COGS High indicates out of stock, loss of sales Average Inventory 365 Avg Days Supply in Inventory = πΌππ£πππ‘πππ¦ π/π π ππ‘ππ Accounts Payable Turnover Ratio Cost of Goods Sold / Average Accounts Payable Debt-toequity ratio Total Liabilities / Stockholders′ Equity π΄π£π π΄ππ ππ πππ¦πππππ = 365 / πππ¦ππππ π/π π ππ‘ππ Tests of Solvency Market Tests Price/ earnings (P/E) ratio Dividend yield ratio Market Price per Share / Earnings per Share Dividends per Share / Market Price per Share Chapter 4: Accrual Accounting Accrued Expense Deferred Expense Accrued Revenue Deferred Revenue Expense incurred, not paid Paid but expense not incurred Revenue earned, cash not received Cash received, revenue not earned Expense(+E, -SE) Payable(+L) Expense(+E, -SE) Prepaid Expense (-A) Receivables(+A) Revenue(+R, +SE) Unearned Rev(-L) Revenue(+R, +SE) Wages / Taxes Prepaid Rent Payment on account Rent collection Chapter 9: Reporting and Interpreting Liabilities πππππ π ππ£πππ’π Recovered Bad Debt −πΆπππππ‘ πΆπππ π·ππ πππ’ππ‘ Accounts Receivable (+A) −πππππ π·ππ πππ’ππ‘ Allowance for Doubtful Acct (+XA, -A) −πππππ π ππ‘π’πππ & π΄ππππ€πππππ Cash (+A) πππ‘ πππππ Accounts Receivable (-A) Step Record estimated bad debt adjustments Timing End of period in which sales are made Identify and write off Throughout period actual bad debts as bad debts become known Accounts Affected Dr: Bad Debt Expense Cr: Allowance for Doubtful Accounts Dr: Allowance for Doubtful Accounts Cr: Accounts Receivable Ending Balance per Bank + Deposits in Transit = πππ¦ πππππ ππ‘ − ππππ πππππ ππ‘ − Outstanding Checks Contingent Subject to estimate Not subject to estimate Financial Statement ↑ Net Income ↓ ↑ Assets (AR, Net) ↓ ↓ Net Income NE ↓ Assets (AR, Net) Beginning Inventory + Purchases = Goods Available for Sale Goods Available for Sale − Ending Inventory = COGS Account Current Year (Overstate) Subsequent Year Beginning Inventory Correct ↑ Ending Inventory ↑ Correct Cost of Goods Sold ↓ ↑ Net Income ↑ ↓ Income Tax Expense ↑ ↓ Self-Correct Retained Earnings ↑ ↓ Self-Correct Taxes Payable ↑ ↓ Self-Correct Chapter 8: Reporting and Interpreting PPE Interest Expense part of acquisition cost for constructed assets, not purchased Goodwill: Amount purchase price exceeds fair market value of net assets πΆππ π‘ − π ππ πππ’ππ ππππ’π πΏπππ ππ πππππ πΆππ π‘ − π ππ πππ’ππ ππππ’π π·ππππππππ‘πππ π ππ‘π = πΏπππ ππ π. π. π π·ππππππππ‘πππ πΈπ₯ππππ π = π ππ‘π x ππππ‘π πππππ’πππ π Decliningπ΄πππ’ππ π·ππππππππ‘πππ = ππ΅π × ( ) ππ πππ’π ππππ ππ πππππ Balance Measuring Asset Impairment 1) Asset impaired if: Book Value > Future Cash Flows (Future Benefits) 2) Then, ππππππππππ‘ πππ π = ππ΅π − πΉπππ ππππ’π (ππππππ‘ π£πππ’π) Disposal of PPE Gain Cash (+A) (Loss) Accumulated Depreciation (-XA, +A) (Loss on Sale (+Loss, -SE) ) Gain on Sale (+Gain, +SE) Equipment (-A) Treatment Financial Statement Effect Statement Expense Income Taxes Capital Balance sheet Deferred Higher π΄πππ’ππ πππππππππ‘πππ = account Debited Income Statement Account Debited Currently Recognized Disclose in note Remote Disclosure not required Disclosure not required 1 × π΄πππ’ππ‘ (1 + π)π 1 − (1 + π)−π ππππ πππ‘ ππππ’π ππ ππ π΄πππ’ππ‘π¦ = π΄πππ’ππ‘ × ( ) π 31 Dec Interest Expense (+E, -SE) Interest Payable (+L) Notes Payable (+L) Cash (-A) Chapter 11: Reporting and Interpreting Owner’s Equity Chapter 7: Inventory & Cost of Goods Sold Expenditure Revenue Expenditure Reasonably Probable Disclose in note ππππ πππ‘ ππππ’π ππ π ππππππ π΄πππ’ππ‘ = Ending Balance per Book + Deposits by Bank (credit memo) − Service Charge = πβππππ π€πππ‘π‘ππ − πβππππ πππππππ − NSF Checks ±Bank Errors = Correct Balance StraightLine Units-ofProduction Probable Record as liability Disclose in note Lower Small Stock Dividend Large Stock Dividend Stock Dividend < 20-25% Stock Dividend > 20-25% Record at current market value Record at par value of stock Retained Earnings (-SE) Retained Earnings (-SE) Common Stock (+SE) Common Stock (+SE) Additional Paid-in Capital (+SE) ππ’ππππ ππ π βππππ ππ’π‘π π‘ππππππ πππππππ ππ ππ¦ π₯% Total SE Common Stock Paid-in Capital Retained Earnings No. of Shares Outstanding Par Value per Share Purchase of Treasury Stock Treasury Stock (+XSE, -SE) Cash (+A) Issuance of Common Stock Small Stock Dividend NE ↑ ↑ ↓ ↑ NE Large Stock Dividend NE ↑ NE ↓ ↑ NE Stock Splits NE NE NE NE ↑ ↓ Reissuance of Treasury Stock Cash (+A) (Capital in excess of par value (-SE) ) Treasury Stock (-XSE, +SE) Capital in excess of par value (+SE) Cash (+A) Common Stock (+SE) Capital in Excess of Par Value (+SE) Chapter 13: Statement of Cash Flows Operating Investing Financing Inflows -Customers -Dividends and interest on investments -Sale or disposal of PPE -Sale or maturity of investments in securities -Borrowings on notes, mortgages, bonds, etc. from creditors -Issuance of stock Outflows -Inventory -Salaries and Wages -Income taxes -Interest on liabilities -Purchase of PPE -Purchase of investments in securities -Repayment of principle to creditors (excl. interest, which is Operating) -Purchase of Treasury Stock -Dividends payment
