# What are the

11 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 ExpensesFormula 2: Current Assets

__Net Fixed Assets__

Net fixed assets are the book value of fixed assets.

*Net Fixed Assets* = Fixed Assets @ cost – Accumulated DepreciationFormula 3: Net Fixed Assets

__Total Assets__

The sum of all assets

*Total Assets* = Current Assets + Other Assets + Net Fixed AssetsFormula 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 PayableFormula 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 EarningsFormula 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’ EquityFormula 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 SoldFormula 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 & AdministrativeFormula 9: Operating Expenses

__Income From Operations__

Net profit from the product or services sold.

*Income From Operations* = Gross Margin – Operating ExpensesFormula 10: Income From Operations

__Net Income__

Net income is all income minus total expenses and costs.

*Net Income* = Income From Operations + Interest Income – Income TaxesFormula 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.

Return from **Accounting Formulas** to **Accounting Dictionary**