# What are the11 Basic Accounting Formulas?

There are several accounting formulas used to report the financial health of a person or business. These formulas are used to produce the Balance Sheet and Income Statement. Also known as Profit & Loss Statement.

The accounting equation is a vital formula. For it is the root of accounting.

Worth = Assets – Liabilities

Formula 1: Accounting Equation

The accounting formulas needed to produce the Accounting Balance Sheet are:

Current Assets

Current assets are the sum of assets that will convert into cash in less than 12 months.

Current Assets = Cash + Accounts Receivable + Inventory + Prepaid Expenses

Formula 2: Current Assets

Net Fixed Assets

Net fixed assets are the book value of fixed assets.

Net Fixed Assets = Fixed Assets @ cost – Accumulated Depreciation

Formula 3: Net Fixed Assets

Total Assets

The sum of all assets

Total Assets = Current Assets + Other Assets + Net Fixed Assets

Formula 4: Total Assets

Current Liabilities

Bills due with in 12 months of the Balance Sheet date.

Current Liabilities = Accounts Payable + Accrued Expenses + Current Portion of Debt + Income Taxes Payable

Formula 5: Current Liabilities

Shareholder’s Equity

Shareholder’s equity is the value of the company to its owners. Also called net worth.

Shareholder’s Equity = Capital Stock + Retained Earnings

Formula 6: Shareholder’s Equity

Total Liabilities & Equity

This is the total obligation plus worth of the entity.

Total Liabilities & Equity = Current Liabilities + Long-Term Debt + Shareholders’ Equity

Formula 7: Total Liabilities & Equity

The next accounting formulas are needed to produce the Income Statement. Also called the Profit & Loss Statement.

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

Formula 8: Gross Margin

Operating Expenses

The sum of expenses paid for developing and selling the product or service.

Operating Expenses = Sales & Marketing + Research & Development + General & Administrative

Formula 9: Operating Expenses

Income From Operations

Net profit from the product or services sold.

Income From Operations = Gross Margin – Operating Expenses

Formula 10: Income From Operations

Net Income

Net income is all income minus total expenses and costs.

Net Income = Income From Operations + Interest Income – Income Taxes

Formula 11: Net Income

In summary, the above accounting formulas are all a person will need to generate the two main financial statements. However, to fully explore the financial health of person or business knowledge of accounting ratios are required.