- Accounting equation
- Assets = Liabilities + Equity
- Expanded accounting equation
- Assets = Liabilities + Owner's capital − Drawings + Revenue − Expenses
- Which accounts increase with a debit?
- Assets, expenses and dividends/drawings (DEA)
- Which accounts increase with a credit?
- Liabilities, equity and revenue (LER)
- Accrual basis
- Revenue is recorded when earned and expenses when incurred, not when cash moves
- Trial balance
- A list of all accounts and balances, used to check that total debits equal total credits
- Prepaid expense
- A cost paid in advance and recorded as an asset, then expensed as it is used
- Unearned revenue
- Cash received before the work is done; a liability until earned
- Accrued revenue
- Revenue earned but not yet billed or recorded. Debit Receivable, credit Revenue
- Accrued expense
- An expense incurred but not yet paid. Debit Expense, credit Payable
- Accumulated depreciation
- A contra-asset account holding all depreciation recorded so far
- Straight-line depreciation
- (Cost − Salvage value) ÷ Useful life
- Double-declining balance
- Book value × (2 ÷ Useful life), never below salvage value
- Book value
- Cost − Accumulated depreciation
- FIFO
- First in, first out: the oldest costs go to cost of goods sold first
- LIFO
- Last in, first out: the newest costs go to cost of goods sold first
- Cost of goods sold (periodic)
- Beginning inventory + Purchases − Ending inventory
- Contribution margin
- Sales − Variable costs (per unit: Price − Variable cost)
- Break-even point (units)
- Fixed costs ÷ Contribution margin per unit
- Margin of safety
- Actual sales − Break-even sales
- Current ratio
- Current assets ÷ Current liabilities
- Return on equity
- Net income ÷ Shareholders' equity
- Debt ratio
- Total liabilities ÷ Total assets
- Present value of a single amount
- FV ÷ (1 + r)ⁿ
- Net present value (NPV)
- PV of future cash flows − Initial investment. Accept if NPV > 0
- Internal rate of return (IRR)
- The discount rate that makes NPV equal zero
