Accounting Flashcards
What is the fundamental accounting eqaution
Assets - Liabilities = Owner’s equity
What are assets
Assets are things you own
What are liabilities
Liabilities are things you owe
What is owners equity
Owner’s Equity is the dollar amount of what you own after your debt has been paid
What are the two types of business and explain them
Service Business: provides services, like tennis coaching
Merchandising Business: buys goods from another company and resells them to make a profit, like no-frills or superstore
What is an asset that loses value over time and what are the 4 methods to calculate it?
Depreciation: Straight line, declining balance, double diminishing and units of production (ASK DAVID IF U DONT UNDERSTAND LAST TWO AFTER GOOGLE)
How do you calculate gross profit
Net Sales - Cost of Goods Sold
How do you calculate profit
Gross Profit - Operating Expeses
What is residual value
The amount that an asset is worth at the end of the lease
What is simple interest and what is the formula
is an interest charge that borrowers pay lenders for a loan. It is calculated using the principal only and does not include compounding interest.
Principle * Rate of Interest * Time
What is compound interest and what is the formula
Compound interest is when your money grows faster because it earns extra money on the money you already have.
A=Principle(1+Rate/Compound)^Rate/Time)
What is the break even point and how do you calculate it
It’s the level of production at which the costs of production equal the revenues for a product
BEP = Sales / Costs
What are fixed and variable costs
Fixed costs: of production are the costs that don’t change with the level of production.
Variable costs: of production, on the other hand, are the costs that change as the level of production changes.
What is the formula for the current ratio and what does it tell us?
CA/CL and tells us if we can meet SHORT term obligations
What is the formula for the quick ratio/ acid test ratio and what does it tell us?
Cash + A/R + Short Term Investments / CL
and tells us if we can meet IMMEDIATE obligations
What is the formula for receivables turnover and what does it tell us?
Net Credit Sales / Average Gross A/R and tell us our liquidity in terms of receivables
What is the formula for inventory turnover and what does it tell us?
COGS / Average A/R and tells us our liquidity in terms of inventory
What is the formula for gross profit margin and what does it tell us?
Gross Profit / Net Sales and tell us our margin between selling price and COGS
What is the formula for profit margin and what does it tell us?
Profit / Net Sales and tells us our amount of profit generated by each dollar of sales
What is the formula for asset turnover and what does it tell us?
Net Sales / Average Total Assets and tell us how efficiently our assets are being used to generate sales
What is the formula for return on assets (ROA) and what does it tell us?
Profit / Average Total Assets and tells us the overall profitability of our assets
What is the return on equity formula (ROE) and what does it tell us?
Profit / Average Shareholders Equity and tells us the profitability of shareholders investments
What is the Earnings per share formula and what does it tell us?
Profit - Preferred Dividends / Weighted Average Number Of Common Shares and tells us the profit earned on each common share
What is the Price earnings (PE) formula and what does it tell us?
Market Price Per Share / Earnings Per Share and tell us the relationship between market price per share and earnings per share
