# Accounting Formulas

## What is an Accounting Formula?

The accounting equation or formula is contemplated to be the basis of the double-entry accounting method. The entirety of all the assets or belongings of a firm must be equivalent to the sum of all its records in the B/S. Based on this double-entry method, the accounting formula guarantees that the balance sheet persists â€˜equalisedâ€™ and every entry obtained on the debit side must have an identical record (or coverage) on the credit side.

## What is the basic Accounting Equation?

The formula for accounting equation is obtained on the basic hypothesis that the equity owners have a claim on the entire assets of a firm post subtracting all the liabilities that is outstanding by the firm. This is depicted by the equation: Shareholdersâ€™ Equity = Assets – Liabilities.

 Important Accounting Formulas Assets = Liabilities + Equity $$\begin{array}{l}\frac{Current Assets}{Current Liabilities}= Current Ratio\end{array}$$ Income – Expenses = Net Income Beginning inventory value + Purchases of inventory â€“ Ending inventory value = Cost of goods sold Sales – Cost of goods sold = Gross profit $$\begin{array}{l}\frac{Gross Profit}{Sales} = Gross Profit Margin\end{array}$$ $$\begin{array}{l}\frac{Fixed costs}{Sales \, price \, per \, unit-Variable \, cost \, per\, unit}=Break\, Even \, Point\end{array}$$ $$\begin{array}{l}Sales\, price \, per \, unit \, \times Break-even \, point \, in \, units = Breakeven\, point \, in \, Rupees\end{array}$$ $$\begin{array}{l}Inventory \, turnover \, ratio= \frac{Cost\, of \, Goods \, Sold}{Inventory}\end{array}$$ $$\begin{array}{l}Accounts \, Receivable \, Turnover \, Ratio = \frac{Sales\, on \, credit}{Accounts\, Receivable}\end{array}$$ $$\begin{array}{l}Total\, Asset\, Turnover= \frac{Sales}{Total\, Assets}\end{array}$$ $$\begin{array}{l}Debt\, to \, Equity \, Ratio =Debt – equity \, ratio = \frac{Total \, Liabilities}{Shareholderâ€™s\, Equity}\end{array}$$ $$\begin{array}{l}Quick\, ratio= \frac{Current\, Assets-Inventory}{Current\, Liabilities}\end{array}$$ $$\begin{array}{l}Current\, Ratio= \frac{Current\, Assets}{Current\, Liabilities}\end{array}$$ $$\begin{array}{l}Return\, on\, Assets= \frac{Net\, Income}{Average\, Total\, Assets}\end{array}$$ $$\begin{array}{l}Return\, on\, Equity = \frac{Net\, Income}{Average\, Shareholderâ€™s\, Equity}\end{array}$$ Beginning balance + net income â€“ net losses â€“ dividends = ending balance

The above mentioned is the concept, that is elucidated in detail about â€˜Accounting Formulasâ€™ for the Commerce students. To know more, stay tuned to BYJUâ€™S.

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