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Accounting & Bookkeeping Cheatsheet

A comprehensive cheat sheet covering accounting and bookkeeping basics, key formulas, and financial statement analysis. This guide is designed for students, entrepreneurs, and anyone looking to understand the fundamentals of financial management.

Accounting Basics

Fundamental Accounting Equation

Assets = Liabilities + Equity

This equation is the foundation of the double-entry accounting system, ensuring that the balance sheet always balances.
  • Assets: What a company owns (cash, accounts receivable, inventory, etc.)
  • Liabilities: What a company owes to others (accounts payable, loans, etc.)
  • Equity: The owners’ stake in the company (common stock, retained earnings, etc.)

Key Accounting Principles

Accrual Accounting

Recognizes revenues when earned and expenses when incurred, regardless of when cash changes hands.

Matching Principle

Expenses should be recognized in the same period as the revenues they helped generate.

Going Concern

Assumes the business will continue to operate in the foreseeable future.

Conservatism

Recognize potential losses immediately but delay recognizing potential gains.

Consistency

Use the same accounting methods from period to period.

Debits and Credits

Debit (Dr)

Increases assets, expenses, and dividends. Decreases liabilities, equity, and revenues.

Credit (Cr)

Increases liabilities, equity, and revenues. Decreases assets, expenses, and dividends.

Basic Rule

Debits must always equal credits in every transaction to maintain the balance of the accounting equation.

Bookkeeping Essentials

The Accounting Cycle

  1. Identify Transactions: Recognize and document business activities.
  2. Journal Entries: Record transactions in the general journal.
  3. Posting to Ledger: Transfer journal entries to the general ledger accounts.
  4. Trial Balance: Prepare an unadjusted trial balance to verify debits equal credits.
  5. Adjusting Entries: Make necessary adjustments (e.g., depreciation, accruals).
  6. Adjusted Trial Balance: Prepare an adjusted trial balance.
  7. Financial Statements: Create income statement, balance sheet, and cash flow statement.
  8. Closing Entries: Close temporary accounts (revenues, expenses) to retained earnings.

Common Journal Entries

Sales on Credit

Dr. Accounts Receivable
Cr. Sales Revenue

Purchase of Inventory

Dr. Inventory
Cr. Accounts Payable/Cash

Payment of Expense

Dr. Expense (e.g., Rent Expense)
Cr. Cash

Depreciation Expense

Dr. Depreciation Expense
Cr. Accumulated Depreciation

Accrued Revenue

Dr. Accounts Receivable
Cr. Service Revenue

Accrued Expense

Dr. Expense (e.g., Interest Expense)
Cr. Accounts Payable

Chart of Accounts

A list of all accounts used by a business to record its financial transactions. Typically organized by account type (assets, liabilities, equity, revenue, expenses).

  • Example Account Numbers:
    • Assets: 1000-1999
    • Liabilities: 2000-2999
    • Equity: 3000-3999
    • Revenue: 4000-4999
    • Expenses: 5000-5999

Key Accounting Formulas

Profitability Ratios

Gross Profit Margin

(Revenue - Cost of Goods Sold) / Revenue

Net Profit Margin

Net Income / Revenue

Return on Assets (ROA)

Net Income / Average Total Assets

Return on Equity (ROE)

Net Income / Average Shareholders’ Equity

Liquidity Ratios

Current Ratio

Current Assets / Current Liabilities

Quick Ratio (Acid-Test Ratio)

(Current Assets - Inventory) / Current Liabilities

Cash Ratio

Cash / Current Liabilities

Solvency Ratios

Debt-to-Equity Ratio

Total Debt / Shareholders’ Equity

Debt-to-Assets Ratio

Total Debt / Total Assets

Times Interest Earned Ratio

EBIT (Earnings Before Interest and Taxes) / Interest Expense

Activity Ratios

Inventory Turnover Ratio

Cost of Goods Sold / Average Inventory

Accounts Receivable Turnover Ratio

Net Credit Sales / Average Accounts Receivable

Asset Turnover Ratio

Net Sales / Average Total Assets

Financial Statements

Income Statement

Reports a company’s financial performance over a period of time.

Format:
Revenue

  • Cost of Goods Sold
    = Gross Profit
  • Operating Expenses
    = Operating Income
    +/- Other Income/Expenses
    = Income Before Taxes
  • Income Taxes
    = Net Income

Balance Sheet

A snapshot of a company’s assets, liabilities, and equity at a specific point in time.

Format:
Assets = Liabilities + Equity

Assets
Current Assets
Non-Current Assets

Liabilities
Current Liabilities
Non-Current Liabilities

Equity
Shareholders’ Equity

Statement of Cash Flows

Reports the movement of cash both into and out of the company during a period.

Sections:

  • Operating Activities: Cash flows from normal business operations.
  • Investing Activities: Cash flows from buying and selling long-term assets.
  • Financing Activities: Cash flows from debt, equity, and dividends.
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