Name: Tison Brokenshire

Updated on 2/22/2026

Every essential accounting formula in one cheat sheet. Balance sheet, income statement, ratios, and more with clear tables and examples.

Accounting Formulas Cheat Sheet for Students: 30 Essential Equations

You open your accounting textbook to study for the midterm. Chapter 3 has one set of formulas. Chapter 7 introduces different ones that look similar but calculate something else entirely. The homework uses abbreviations your professor never explained. By the time you reach financial ratios, the formulas from chapter 3 are already fading.

Accounting students face a unique problem: the formulas are not individually difficult, but there are dozens of them spread across chapters, textbooks, and lecture slides. Most study resources are downloadable PDFs that are hard to search on a phone, or paid products on teacher marketplaces. Finding one clean, organized reference means opening five tabs and cross-referencing between them.

This cheat sheet puts every essential accounting formula in one place, organized by category. Each section includes the formula, what it measures, and when you will use it. Print it, bookmark it, or photograph it with Pixno (opens in a new tab) to create a searchable digital copy you can pull up during study sessions.

The Accounting Equation (Foundation)

Every accounting formula builds on one relationship. This is the starting point for the balance sheet and double-entry bookkeeping.

Formula	Equation	What It Tells You
Accounting Equation	Assets = Liabilities + Equity	The foundation of all accounting. Every transaction must keep this equation balanced.
Equity (expanded)	Equity = Assets − Liabilities	How much of the company the owners actually own after debts are paid.
Expanded Accounting Equation	Assets = Liabilities + Owner's Capital + Revenue − Expenses − Draws	Breaks equity into its components for more detailed analysis.

Why it matters: If a balance sheet does not balance, there is an error somewhere. Every journal entry you make either increases both sides equally or shifts amounts within one side.

Income Statement Formulas

These formulas calculate profitability. They appear on nearly every exam from introductory accounting through intermediate.

Formula	Equation	What It Measures
Net Sales	Gross Sales − Sales Returns − Sales Allowances − Sales Discounts	Actual revenue after adjustments
Cost of Goods Sold (COGS)	Beginning Inventory + Purchases − Ending Inventory	Direct cost of products sold
Gross Profit	Net Sales − COGS	Profit after production costs, before operating expenses
Operating Income	Gross Profit − Operating Expenses	Profit from core business operations
Net Income	Revenue − All Expenses (including taxes and interest)	Bottom-line profit or loss
Gross Profit Margin	(Gross Profit ÷ Net Sales) × 100	Percentage of revenue remaining after COGS
Net Profit Margin	(Net Income ÷ Net Sales) × 100	Percentage of revenue that becomes profit

Quick Reference: Income Statement Flow

  Net Sales
− COGS
= Gross Profit
− Operating Expenses
= Operating Income
− Interest Expense
− Taxes
= Net Income

Balance Sheet Formulas

The balance sheet captures a snapshot of financial position at a specific date. These formulas help analyze what a company owns and owes.

Formula	Equation	What It Measures
Working Capital	Current Assets − Current Liabilities	Short-term financial health
Book Value of an Asset	Original Cost − Accumulated Depreciation	Current value of an asset on the books
Total Debt	Short-term Debt + Long-term Debt	Combined borrowing obligations
Shareholders' Equity	Total Assets − Total Liabilities	Net worth belonging to owners
Retained Earnings	Beginning Retained Earnings + Net Income − Dividends	Accumulated profits kept in the business

Financial Ratios

Ratios convert raw numbers into comparable metrics. Professors test these heavily because they reveal financial health at a glance.

Liquidity Ratios

These measure a company's ability to pay short-term obligations.

Ratio	Formula	Good Range	What It Shows
Current Ratio	Current Assets ÷ Current Liabilities	1.5 – 3.0	Can the company cover bills due within a year?
Quick Ratio (Acid Test)	(Current Assets − Inventory) ÷ Current Liabilities	1.0 – 2.0	Same as current ratio but excludes inventory (harder to liquidate)
Cash Ratio	Cash and Equivalents ÷ Current Liabilities	0.5 – 1.0	Most conservative liquidity measure

Profitability Ratios

These measure how effectively the company generates profit.

Ratio	Formula	What It Shows
Return on Assets (ROA)	Net Income ÷ Total Assets	How efficiently assets generate profit
Return on Equity (ROE)	Net Income ÷ Shareholders' Equity	Return generated on owners' investment
Earnings Per Share (EPS)	(Net Income − Preferred Dividends) ÷ Average Common Shares Outstanding	Profit allocated to each share of stock

Efficiency Ratios

These measure how well a company uses its resources.

Ratio	Formula	What It Shows
Inventory Turnover	COGS ÷ Average Inventory	How many times inventory is sold and replaced per year
Accounts Receivable Turnover	Net Credit Sales ÷ Average Accounts Receivable	How quickly customers pay
Days Sales Outstanding (DSO)	(Accounts Receivable ÷ Net Credit Sales) × 365	Average days to collect payment
Asset Turnover	Net Sales ÷ Total Assets	Revenue generated per dollar of assets

Leverage Ratios

These measure how much debt a company uses relative to equity.

Ratio	Formula	What It Shows
Debt-to-Equity Ratio	Total Liabilities ÷ Shareholders' Equity	Proportion of debt vs. owner funding
Debt Ratio	Total Liabilities ÷ Total Assets	Percentage of assets financed by debt
Interest Coverage Ratio	Operating Income ÷ Interest Expense	Ability to pay interest on outstanding debt

Depreciation Formulas

Depreciation spreads the cost of an asset over its useful life. Two methods appear on almost every accounting exam.

Method	Formula	When to Use
Straight-Line	(Cost − Salvage Value) ÷ Useful Life	Equal expense each year. Default for most assets.
Double Declining Balance	(2 ÷ Useful Life) × Book Value at Beginning of Year	Accelerated. Higher expense in early years.
Units of Production	((Cost − Salvage Value) ÷ Total Estimated Units) × Units Produced This Period	Expense based on actual usage, not time.

Depreciation Example

A company purchases equipment for $10,000 with a salvage value of $2,000 and a useful life of 4 years.

Year	Straight-Line	Double Declining Balance
1	$2,000	$5,000
2	$2,000	$2,500
3	$2,000	$1,250
4	$2,000	$1,250 (limited to reach salvage value)
Total	$8,000	$8,000

Both methods produce the same total depreciation. The difference is timing: declining balance front-loads the expense.

Inventory Valuation Methods

Different methods produce different COGS and ending inventory values, which directly affects reported profit.

Method	How It Works	Effect on COGS (Rising Prices)	Effect on Profit (Rising Prices)
FIFO (First In, First Out)	Oldest inventory costs are expensed first	Lower COGS	Higher profit
LIFO (Last In, First Out)	Newest inventory costs are expensed first	Higher COGS	Lower profit
Weighted Average	Average cost of all units available	Middle COGS	Middle profit

Key exam tip: FIFO gives a balance sheet that better reflects current inventory costs. LIFO gives an income statement that better matches current costs against current revenue. Weighted average falls between both. LIFO is not allowed under IFRS (International Financial Reporting Standards), only under US GAAP.

Break-Even Analysis

Break-even analysis determines how much a company must sell to cover all costs with zero profit.

Formula	Equation	What It Tells You
Contribution Margin Per Unit	Selling Price Per Unit − Variable Cost Per Unit	Amount each unit contributes toward covering fixed costs
Break-Even Point (Units)	Fixed Costs ÷ Contribution Margin Per Unit	Number of units needed to cover all costs
Break-Even Point (Dollars)	Fixed Costs ÷ Contribution Margin Ratio	Revenue needed to cover all costs
Contribution Margin Ratio	Contribution Margin Per Unit ÷ Selling Price Per Unit	Percentage of each sales dollar that covers fixed costs

How to Study Accounting Formulas Effectively

Memorizing 30 formulas by staring at a list does not work. Research on memory retention shows that active recall and spaced repetition produce far better results than passive reading.

Step 1: Group by category. Study balance sheet formulas together, then income statement, then ratios. The formulas within each group share logic and build on each other.

Step 2: Work problems, not flashcards alone. Apply each formula to a practice problem immediately after learning it. Seeing numbers flow through the equation builds understanding that pure memorization misses.

Step 3: Use spaced repetition. Review formulas at increasing intervals — day 1, day 3, day 7, day 14. This approach is proven to move information into long-term memory. See our Spaced Repetition Schedule Cheat Sheet for exact interval systems you can follow.

Step 4: Create a portable reference. Photograph this cheat sheet or your handwritten formula notes with Pixno (opens in a new tab) to create a searchable digital version. Having formulas accessible on your phone means you can do a quick five-minute review between classes or during a commute.

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Frequently Asked Questions

What is the most important formula in accounting?

The accounting equation (Assets = Liabilities + Equity) is the most important formula. Every other accounting formula builds on this relationship. It forms the foundation of the balance sheet and double-entry bookkeeping. If you learn only one formula, this is the one.

How many accounting formulas do students need to know?

Most introductory accounting courses require students to know 15 to 25 core formulas. These cover the balance sheet equation, income statement calculations, basic financial ratios, and depreciation methods. This cheat sheet covers the 30 most commonly tested formulas organized by category.

What is the difference between gross profit and net profit?

Gross profit equals revenue minus the cost of goods sold. It measures how much money remains after covering direct production costs. Net profit equals revenue minus all expenses including COGS, operating expenses, interest, and taxes. Gross profit shows production efficiency while net profit shows overall profitability.

How do I memorize accounting formulas quickly?

Start with the accounting equation and build outward. Group formulas by financial statement (balance sheet, income statement, cash flow). Practice by working through real examples rather than rote memorization. Use spaced repetition to review formulas at increasing intervals. Photograph your formula sheets with a tool like Pixno (opens in a new tab) to create searchable digital references you can review anywhere.

What accounting formulas are on the CPA exam?

The CPA exam tests formulas across financial accounting, managerial accounting, and auditing. Key areas include the accounting equation, depreciation methods (straight-line and declining balance), inventory valuation (FIFO, LIFO, weighted average), financial ratios (current ratio, quick ratio, ROE, ROA), and present value calculations. The exam does not allow formula sheets, so memorization is required.