Accounting Cheat Sheet — 1-page PDF

01Accounting Basics

Accounting equation

$\text{Assets}=\text{Liabilities}+\text{Equity}$; always in balance.

Assets

Resources controlled by entity from which future economic benefits are expected.

Liabilities

Present obligations arising from past events; settlement expected to cause outflow of resources.

Equity

Residual interest in assets after deducting liabilities.

Revenue

Inflows / enhancements of assets or decreases of liabilities from ordinary activities.

Expenses

Outflows / using up of assets or incurrences of liabilities to generate revenue.

• $\text{Net income}=\text{Revenues}-\text{Expenses}$
• $\text{Ending retained earnings}=\text{Beginning RE}+\text{Net income}-\text{Dividends}$
• Accounting period: revenue/expense recognition, not cash basis

02Debits Credits

03Adjusting Entries

Adjusting entry

Entry at period end to update accounts to accrual basis; no cash required.

• Accrued revenue: revenue earned, not yet recorded
• Accrued expense: expense incurred, not yet recorded
• Deferred revenue: cash received, revenue not yet earned
• Prepaid expense: cash paid, expense not yet used

Watch out:Adjusting entries change income statement and balance sheet amounts simultaneously.

04Inventory Costing

Watch out:In rising prices: FIFO ⇒ lower COGS, higher NI, higher ending inventory; LIFO ⇒ opposite (tax/accounting consequences).

05Depreciation

Depreciation

Systematic allocation of depreciable cost of a tangible asset over useful life; not valuation to market.

06Liabilities Bonds

Watch out:Bond interest expense is based on market rate / effective rate on carrying value, not always cash paid.

07Ratios

Current ratio

$\text{Current assets}/\text{Current liabilities}$; short-term liquidity.

Quick ratio

$(\text{Cash}+\text{Short-term investments}+\text{Net receivables})/\text{Current liabilities}$; acid-test liquidity.