# Accounting formulas and calculations pdf

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*We know that every business owns some properties known as assets.*

Basic Physics Formulas Pdf We assume basic familiarity with vector calculus and matrix algebra. Basic Math Formulas - Basic-mathematics. Also includes the value of Physical constants. The book is available in both hard and soft form.

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Double entry bookkeeping and accounting is based on the basic accounting equation which states that the total assets of a business must equal the total liabilities plus the owners equity in the business. The balance sheet is a reflection of the basic accounting equation. One side represents the assets of the business buildings, inventory, vehicles etc , and the other side represents how those assets were funded capital, retained earnings, loans, supplier credit etc.

Notice that owners equity includes amounts invested by the owners capital and profits of the business which have been retained. It should be noted that for a corporation owners equity would be replaced by stockholders equity. The basic accounting equation sometimes referred to as the basic accounting formula is true at any point in time for a business and is also true for each individual double entry transaction.

For example, if the business buys furniture on credit from a supplier for then the basic accounting formula is as follows. The two sides of the basic accounting equation are equal. On one side is the furniture coming into the business as an asset what the business owes , on the other side is the funding for the asset which in this case is credit from a supplier what the business owes to others.

In our examples section we set out typical double entry bookkeeping transactions and show how each transaction affects the accounting formula. Since owners equity is made up from capital injected and retained earnings of the business, the accounting formula can be expanded as follows:.

In addition, retained earnings can be expanded to cumulative revenue less expenses less owners drawings, giving the fully expanded accounting equation shown below. It should also be noted that since the cumulative revenue less expenses is equal to the cumulative net income of the business for the accounting formula can also be stated as follows. The owners drawings represent cash taken out of the business by way of salary, in a company this would be represented by dividends paid to the equity owners.

It is also possible to write the expanded accounted equation in terms of the current period net income. The expanded accounting formula effectively shows that retained earnings is the link between the balance sheet and the income statement. The income statement is in fact a further analysis of the equity of the business.

The expanded accounting formula diagram used in this tutorial is available for download in PDF format by following the link below. Net worth is another term for equity and is the difference between the assets and liabilities. We can get the formula for calculating net-worth by rearranging the accounting equation as follows:.

In the event that the liabilities are greater than the assets of the business, the net worth can be a negative figure. For a business, net worth is normally calculated using the assets and liabilities shown in the balance sheet.

This means that it reflects the carrying value of the assets and liabilities and not necessarily their market value. It should be noted that the term net worth is sometimes used in relation to an individual.

The calculation for an individual generally refers to the market value of their assets and liabilities and as such represents the net wealth of the individual. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own.

He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University. What is the Basic Accounting Equation? Last modified July 16th, by Michael Brown. You May Also Like. Accounting Equation. Debtor Days Ratio. Break Even Formula.

## Accounting equation

Double entry bookkeeping and accounting is based on the basic accounting equation which states that the total assets of a business must equal the total liabilities plus the owners equity in the business. The balance sheet is a reflection of the basic accounting equation. One side represents the assets of the business buildings, inventory, vehicles etc , and the other side represents how those assets were funded capital, retained earnings, loans, supplier credit etc. Notice that owners equity includes amounts invested by the owners capital and profits of the business which have been retained. It should be noted that for a corporation owners equity would be replaced by stockholders equity.

An accounting transaction is a business activity or event that causes a measurable change in the accounting equation. An exchange of cash for merchandise is a transaction. Merely placing an order for goods is not a recordable transaction because no exchange has taken place. In the coming sections, you will learn more about the different kinds of financial statements accountants generate for businesses. In the previous section we described specific types of accounts that business activities fall into, namely:. The accounting equation is:. The assets owned by the business will then be calculated as:.

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## Accounting equation

The calculation of Basic EPS is based on the weighted average number of ordinary shares outstanding during the period, whereas diluted EPS also includes dilutive potential ordinary shares such as options and convertible instruments if they meet certain criteria. IAS 33 was reissued in December and applies to annual periods beginning on or after 1 January The objective of IAS 33 is to prescribe principles for determining and presenting earnings per share EPS amounts to improve performance comparisons between different entities in the same reporting period and between different reporting periods for the same entity. IAS 33 applies to entities whose securities are publicly traded or that are in the process of issuing securities to the public.

Many small business owners, however, prefer to handle this aspect of their businesses themselves, foregoing an accountant in order to maintain control over their own books. These formulas are generally regarded as universal to any business and will provide you with the figures you need to understand the viability and health of your business. Knowing how to calculate retained earnings allows owners to perform a more in-depth financial analysis. The statement of retained earnings allows owners to analyze net income after accounting for dividend payouts. Owners should calculate the statement of retained earnings at the end of each accounting period, even if the amount of dividends issues was zero.

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### Basic Physics Formulas Pdf

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