ACTG 1P91: Master Formula Sheet (Final Exam)
Built from your chapter PowerPoints (McGraw Hill 2024). Exam: 9 short-answer/fill-in questions, all 12 chapters, weighted to Ch 8–12. Guaranteed topics: journal entries, balance sheet, income statement, statement of cash flows, bank reconciliation.
1. The Foundation (Ch 1–2)
| Formula | Notes |
|---|---|
| Assets = Liabilities + Shareholders' Equity | THE accounting equation. Must hold for every transaction. |
| Shareholders' Equity = Contributed Capital + Retained Earnings | (+ Accumulated Other Comprehensive Income, Ch 11) |
| Ending RE = Beginning RE + Net Income − Dividends Declared | Statement of retained earnings |
| Net Income = Revenues − Expenses | |
| Current Ratio = Current Assets ÷ Current Liabilities | Higher = better ability to pay short-term debts |
Debit/Credit rules (memorize cold: needed for every journal entry)
| Account type | Increases with | Normal balance |
|---|---|---|
| Assets | Debit | Debit |
| Expenses | Debit | Debit |
| Dividends Declared | Debit | Debit |
| Liabilities | Credit | Credit |
| Revenues | Credit | Credit |
| Contributed Capital / Common Shares | Credit | Credit |
| Retained Earnings | Credit | Credit |
| Contra-asset (Accumulated Depreciation, Allowance for Doubtful Accounts) | Credit | Credit |
| Contra-revenue (Sales Discounts, Sales Returns & Allowances) | Debit | Debit |
| Contra-liability (Discount on Bonds Payable) | Debit | Debit |
Journal entry format: date → debits first, credits indented → total debits = total credits.
2. Income Statement & Adjustments (Ch 3–4)
| Formula | Notes |
|---|---|
| Net Profit Margin = Net Income ÷ Total Revenue × 100 | Profit from each dollar of revenue |
| Book/Carrying Value = Cost − Accumulated Depreciation | Used everywhere in Ch 9 |
Adjustment pairings (Ch 4):
- Deferral adjustments: one asset ↔ expense pair (supplies used, rent expired, depreciation) or one liability ↔ revenue pair (deferred revenue earned). Cash moved FIRST, adjust later.
- Accrual adjustments: one asset ↔ revenue pair (interest receivable) or one liability ↔ expense pair (wages payable, interest payable). Cash moves LATER.
- Adjusting entries never involve Cash.
- Closing: all temporary accounts (revenues, expenses, Dividends Declared) close into Retained Earnings.
3. Bank Reconciliation (Ch 5): GUARANTEED ON EXAM
BANK side (no journal entries needed) BOOK side (journal entries REQUIRED)
Ending balance per bank statement Ending balance per company books
+ Deposits in transit + Interest earned
− Outstanding cheques + EFT collections from customers
± Bank errors − NSF (bounced) cheques
− Bank service charges
± Company errors
= Up-to-date (reconciled) cash ═══ = Up-to-date (reconciled) cash
Both sides must equal. Journal entries are made ONLY for the book-side items:
- Interest earned: Dr Cash / Cr Interest Revenue
- EFT collection: Dr Cash / Cr Accounts Receivable
- NSF cheque: Dr Accounts Receivable / Cr Cash
- Service charge: Dr Office/Bank Expense / Cr Cash
4. Merchandising & Multi-Step Income Statement (Ch 6)
| Formula | Notes |
|---|---|
| BI + Purchases = Goods Available for Sale | |
| BI + P − EI = CGS (periodic) | Count inventory, back out CGS |
| BI + P − CGS = EI (perpetual) | Track CGS at every sale |
| Net Sales = Sales Revenue − Sales Returns & Allowances − Sales Discounts | Contra-revenues |
| Gross Profit = Net Sales − Cost of Goods Sold | |
| Gross Profit % = (Net Sales − CGS) ÷ Net Sales × 100 | Profit per sales dollar before operating expenses |
| Purchase discount "2/10, n/30" | 2% off if paid within 10 days, else full amount due in 30 |
Multi-step income statement skeleton:
Net Sales
− Cost of Goods Sold
= Gross Profit
− Selling, General & Administrative Expenses
= Income from Operations
± Other Revenues/Expenses (e.g., interest)
= Income Before Income Tax
− Income Tax Expense
= Net Income
Perpetual sale = TWO entries: ① Dr Cash/AR, Cr Sales Revenue (selling price) ② Dr CGS, Cr Inventory (cost).
Freight-in → added to Inventory. Delivery to customers → Selling Expense.
5. Inventory Costing (Ch 7)
| Formula | Notes |
|---|---|
| Weighted Average Cost/unit = Cost of Goods Available for Sale ÷ Units Available for Sale | |
| Inventory Turnover = CGS ÷ Average Inventory | Higher = faster selling |
| Days to Sell = 365 ÷ Inventory Turnover | |
| Average Inventory = (Beginning + Ending Inventory) ÷ 2 |
- Three acceptable methods in Canada: specific identification, FIFO, weighted average. (LIFO is NOT allowed.)
- FIFO: oldest costs → CGS; newest costs → ending inventory. Same answer periodic or perpetual.
- Rising prices: FIFO gives higher EI, lower CGS, higher gross profit. Falling prices: reversed.
- LC&NRV: write inventory down to net realizable value when it drops below cost. Write-down: Dr CGS / Cr Inventory.
6. Receivables & Bad Debts (Ch 8) ★ KEY CHAPTER
| Formula | Notes |
|---|---|
| Interest = Principal × Rate × Time | Time = months/12 (rate is always annual) |
| Bad Debt Expense (% of credit sales) = Credit Sales × loss rate | Income-statement approach; result IS the expense |
| Bad Debt Expense (aging) = Desired ending AFDA balance − existing credit balance | Balance-sheet approach |
| ...if AFDA has existing debit balance: Desired balance + debit balance | e.g. $17,240 + $7,000 = $24,240 |
| Net Realizable Value of AR = Accounts Receivable − Allowance for Doubtful Accounts | What you expect to collect |
| Receivables Turnover = Net Sales Revenue ÷ Average Net Receivables | Higher = faster collection |
| Days to Collect = 365 ÷ Receivables Turnover |
Journal entries to know:
| Event | Entry |
|---|---|
| Record estimated bad debts | Dr Bad Debt Expense / Cr Allowance for Doubtful Accounts |
| Write off a customer | Dr AFDA / Cr Accounts Receivable (no income statement effect) |
| Recovery (2 entries) | ① Dr AR / Cr AFDA ② Dr Cash / Cr AR |
| Establish note receivable | Dr Note Receivable / Cr Cash |
| Accrue interest at year-end | Dr Interest Receivable / Cr Interest Revenue |
| Collect interest later | Dr Cash / Cr Interest Receivable (prior accrual) + Cr Interest Revenue (this year's) |
7. Long-Lived Assets & Depreciation (Ch 9) ★ KEY CHAPTER
| Formula | Notes |
|---|---|
| Depreciable Cost = Asset Cost − Residual Value | |
| Straight-line: (Cost − Residual) ÷ Useful Life | Same expense every year |
| Units-of-production: (Cost − Residual) ÷ Total Estimated Production × Actual Production this period | Varies with usage; no partial-year adjustment needed |
| Declining-balance: Book Value × (2 ÷ Useful Life) | "Double-declining." Uses BOOK VALUE, ignores residual in formula: but never depreciate below residual value |
| Partial year (SL & DB): annual amount × fraction of year owned | |
| Revised depreciation = (Book Value − New Residual) ÷ Remaining Useful Life | For changes in estimates |
| Gain/(Loss) on Disposal = Proceeds − Book Value | Two steps first: ① update depreciation to disposal date ② remove cost AND accumulated depreciation |
| Amortization (intangibles) = Cost ÷ Useful Life | Straight-line, usually no residual |
| Fixed Asset Turnover = Net Sales Revenue ÷ Average Net Fixed Assets | Sales per dollar of fixed assets |
- Capitalize: purchase price + tax + delivery + installation (all costs to get ready for use). Expense: ordinary repairs/maintenance.
- Land is never depreciated. Trademarks & goodwill (unlimited life) are not amortized: tested for impairment instead.
- Impairment: ① eliminate Accumulated Depreciation against asset ② write asset down to fair value (Dr Impairment Loss).
- Disposal entry: Dr Cash (proceeds) + Dr Accumulated Depreciation / Cr Asset (cost) + Cr Gain (or Dr Loss).
8. Liabilities & Bonds (Ch 10) ★ KEY CHAPTER
| Formula | Notes |
|---|---|
| Interest = Principal × Rate × Time | Same formula as Ch 8, now it's interest EXPENSE |
| Sales tax collected = Sale price × tax rate | Dr Cash (total) / Cr Sales Revenue + Cr PST Payable + Cr GST Payable |
| Debt-to-Assets = Total Liabilities ÷ Total Assets | Higher = more financing risk |
| Times Interest Earned = (Net Income + Interest Expense + Income Tax Expense) ÷ Interest Expense | Higher = better coverage |
Bond pricing rule:
| Condition | Issued at |
|---|---|
| Stated rate = Market rate | Face value |
| Stated rate > Market rate | Premium (price above 100) |
| Stated rate < Market rate | Discount (price below 100) |
- Bond price quote: "$103" means 103% of face → $100,000 × 1.03 = $103,000.
- Discount amortization → Interest Expense > cash payment (carrying value rises to face).
- Premium amortization → Interest Expense < cash payment (carrying value falls to face).
- Deferred Revenue: Dr Cash / Cr Deferred Revenue when received; Dr Deferred Revenue / Cr Revenue when earned.
- Contingent liability: record if probable AND estimable; otherwise note disclosure only.
- Employer payroll: matches CPP, pays 1.4× employee EI.
9. Shareholders' Equity (Ch 11) ★ KEY CHAPTER
| Formula | Notes |
|---|---|
| EPS = Net Income (− Preferred Dividends) ÷ Average Number of Common Shares Outstanding | |
| ROE = Net Income ÷ Average Shareholders' Equity | |
| P/E Ratio = Current Share Price ÷ EPS (annual) | |
| Preferred dividend per year = Preferred rate × Book value of preferred shares | e.g. 6% × $40,000 = $2,400 |
| Stock dividend amount = Shares outstanding × dividend % × market price/share | Moves RE → Common Shares |
Cumulative preferred: dividends in arrears (missed years) get paid FIRST, then current year's preference, then the remainder to common.
Dividend dates:
| Date | Entry |
|---|---|
| Declaration | Dr Dividends Declared / Cr Dividends Payable (liability created) |
| Record | No entry |
| Payment | Dr Dividends Payable / Cr Cash |
Comparison (know this table):
| # shares | Total SE | Retained Earnings | |
|---|---|---|---|
| Cash dividend | no change | ↓ | ↓ |
| Stock dividend | ↑ | no change | ↓ (moves to Common Shares) |
| Stock split | ↑ | no change | no change |
Share issuance: Dr Cash / Cr Common Shares. Repurchase above avg issue price: difference debits Retained Earnings; below: credits Contributed Surplus.
10. Statement of Cash Flows (Ch 12) ★ GUARANTEED ON EXAM
Classification rule of thumb:
- Operating → current assets & current liabilities (and income statement items)
- Investing → non-current ASSETS (buy/sell PPE, intangibles)
- Financing → non-current liabilities & shareholders' equity (loans, bonds, shares, dividends paid)
Indirect method: operating section (memorize the direction of every adjustment):
Net Income
+ Depreciation/Amortization (non-cash expense)
+ Losses on disposal (non-operating; remove from NI)
− Gains on disposal (non-operating; remove from NI)
− Increase in current asset (AR, Inventory, Prepaids)
+ Decrease in current asset
+ Increase in current liability (AP, Accrued Liabilities)
− Decrease in current liability
= Net cash provided by (used in) operating activities
Memory hook: current assets move OPPOSITE to cash; current liabilities move WITH cash.
Full statement skeleton:
Operating activities (above) $ X
Investing: − purchases of PPE/intangibles, + proceeds from sales X
Financing: + borrowings/share issues, − loan repayments,
− share repurchases, − dividends paid X
= Net increase (decrease) in cash
+ Cash, beginning of period
= Cash, end of period ← must tie to balance sheet!
- Direct and indirect methods give the same operating total; only the operating section differs.
- Cash includes cash equivalents (highly liquid, bought within 3 months of maturity).
- Free cash flow = operating cash flow beyond what's needed: used to expand, repay financing, or build cash.
- Change in Cash = Change in (Liabilities + SE − Non-cash Assets).
11. Classified Balance Sheet Template (Ch 2)
ASSETS LIABILITIES
Current Assets: Current Liabilities:
Cash & Cash Equivalents Accounts Payable
Accounts Receivable (net) Accrued Liabilities
Inventory Deferred Revenue
Prepaid Expenses Current portion of debt
Non-current: Long-Term Liabilities:
Property, Plant & Equipment Notes/Bonds Payable
− Accumulated Depreciation SHAREHOLDERS' EQUITY
Intangible Assets & Goodwill Contributed Capital (Common/Preferred Shares)
Retained Earnings
Total Assets = Total Liabilities + SE
Order: assets by liquidity; liabilities by due date.
Ratio Round-Up (every ratio in the course, one place)
| Ratio | Formula | Ch |
|---|---|---|
| Current ratio | Current Assets ÷ Current Liabilities | 2 |
| Net profit margin | Net Income ÷ Total Revenue × 100 | 3 |
| Gross profit % | (Net Sales − CGS) ÷ Net Sales × 100 | 6 |
| Inventory turnover | CGS ÷ Average Inventory | 7 |
| Days to sell | 365 ÷ Inventory Turnover | 7 |
| Receivables turnover | Net Sales ÷ Average Net Receivables | 8 |
| Days to collect | 365 ÷ Receivables Turnover | 8 |
| Fixed asset turnover | Net Sales ÷ Average Net Fixed Assets | 9 |
| Debt-to-assets | Total Liabilities ÷ Total Assets | 10 |
| Times interest earned | (NI + Interest Exp + Tax Exp) ÷ Interest Exp | 10 |
| EPS | (NI − Preferred Div) ÷ Avg Common Shares | 11 |
| ROE | NI ÷ Average Shareholders' Equity | 11 |
| P/E | Share Price ÷ EPS | 11 |
"Average" anything = (Beginning + Ending) ÷ 2.