Kate Mooney

Accounting, as you may guess, involves a lot of math. As you practice various types of accounting problems, and when you begin doing accounting work for real, you will need to utilize various formulas to calculate the information you need.10 useful accounting formulasThe following are some of the most frequently used accounting formulas.

You may be asked to calculate the expected balance of accounts receivable or the inventory balance for your company at the end of the year. If you've never done this before, don't panic: the following practice questions will show you the basics. Practice questions Use the following financial information about a company for 2014 to answer the questions: Annual sales: $13,000,000 Annual cost of goods sold: $7,150,000 Historically, accounts receivable at the end of the year equal about 3 weeks of annual sales.

The debt-to-equity ratio tells you how much debt a company has in relation to its equity. So, which is better: a higher or a lower ratio? If you think you know, then you can test your knowledge with the following practice questions. Practice questions How do you calculate the debt-to-equity ratio? Which of the following statements is incorrect?

Cash-basis accounting posts income and expenses solely based on cash inflows and cash outflows—in other words, when cash exchanges hands. Accrual-basis accounting records revenues when earned and expenses when they occur, and not when cash exchanges hands. Here are two practice questions to show the difference.

The following are some of the most frequently used accounting formulas. This list is not comprehensive, but it should cover the items you’ll use most often as you practice solving various accounting problems. Balance sheet formula Assets – liabilities = equity (or assets = liabilities + equity) This basic formula must stay in balance to generate an accurate balance sheet.

After you create financial statements, you need some tools to analyze a company’s results. Following are the most frequently used formulas to analyze financial statements. Get familiar with them so that you can analyze statements with confidence. Components of work-in-process Direct materials + direct labor + factory overhead applied Work-in-process (WIP) represents cost incurred in production for partially completed goods.

After you create financial statements, you need some tools to analyze the company’s results. Following are some additional formulas accountants use to analyze financial statements. Become familiar with these formulas, and use them as you practice various accounting problems. Burden rate Fixed manufacturing costs ÷ units produced Fixed costs can’t be directly traced to a unit produced.

Manufacturing costs are directly associated with production; they include direct materials, direct labor, variable overhead, and fixed overhead. A manufacturer will use this information to determine the cost of their product. In the following practice questions, you are asked to weed out the non-manufacturing costs and then calculate the total manufacturing costs for two different companies.

An accountant uses depreciation is to allocate the cost of a fixed asset over the years of its useful life. The straight-line depreciation method is the most popular type because it allocates the same amount of depreciation to each year the asset is in use. The following practice questions show the straight-line depreciation method in action.