COMMERCE 1AA3 Chapter Notes - Chapter 1: Current Liability, Net Profit, Income Statement
12 Jun 2018
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Formula
Explanation
Equation
These formulas are used to produce the Balance Sheet and Income Statement.
Profit & Loss Statement.
1
The
Accounting
Equation
A vital formula. For it is the
root of accounting.
Worth = Assets – Liabilities
2
Current Assets
The sum of assets that will
convert into cash in less than
12 months.
Current Assets = Cash + Accounts
Receivable + Inventory + Prepaid
Expenses
3
Net Fixed
Assets
The book value of fixed assets.
Net Fixed Assets = Fixed Assets @
cost – Accumulated Depreciation
4
Total Assets
The sum of all assets
Total Assets = Current Assets + Other
Assets + Net Fixed Assets
5
Current
Liabilities
Bills due within 12 months of
the Balance Sheet date.
Current Liabilities = Accounts
Payable + Accrued Expenses +
Current Portion of Debt + Income
Taxes Payable
6
Shareholders’
Equity
The value of the company to
its owners. Also called net
worth.
Shareholder’s Equity = Capital Stock
+ Retained Earnings
7
Total
Liabilities &
Equity
The total obligation plus worth
of the entity
Total Liabilities & Equity = Current
Liabilities + Long-Term Debt +
Shareholders’ Equity
The next accounting formulas are needed to produce the Income Statement.
The Profit & Loss Statement.
8
Gross Margin
The left-over amount after cost
of goods sold are taken away
from net sales
Gross Margin = Net Sales – Cost of
Goods Sold
9
Operating
Expenses
The sum of expenses paid for
developing and selling the
product or service.
Operating Expenses = Sales &
Marketing + Research & Development
+ General & Administrative
10
Income from
Operations
Net profit from the product or
services sold
Income from Operations = Gross
Margin – Operating Expenses
11
Net Income
All income minus total
expenses and costs
Net Income = Income from
Operations + Interest Income –
Income Taxes
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