Cheat Sheet For Accounting

Cash(A)=Deferred Revenue + R/E
A/R - Allowance for Bad Debt = R/E

100
(100)Bad debt exp.
(10)
(10)
reduce
NI
but
not
require
cash(e.g.,depreciation expense)
Add/Subtract: any gains or losses associated
with investing activities(e.g.,PP&E disposal)
Add/Subtract: changes in working capital
accounts
(Working
capital:
current
assets
and
A/R Turnover = Revenue / Average Accounts

Receivable
Days receivables = 365 / AR Turnover
Beginning Inventory + Additions = Cost of
goods sold + Ending Inventory
EInvLIFO <= EInvFIFO
COGSLIFO COGSFIFO
LIFOReserve = EndingInv FIFO EndingInv
LIFO
Change in LIFO Reserve = COGS LIFO COGS
FIFO
Inventory Turnover = COGS / Average
Inventory
Days inventory = 365 / Inventory Turnover
Depreciation expense/ year =
bond
Available for sale (debt and equity)
Yes
No
Trading securities (debt and equity)
Yes
Ye
s
Cash AFS = Other Comprehensive Income R/E

(2500) 2500
1250--dividends
1250
500
500(unrealized gain)
(300)
(300) (unrealized loss)
3600 (2700) Securities sold, 2016 gain-----900
(200) 2014,2015gains----200
liabilities)
In the initial stages of a firms life
financing cash flows are + / investing cash flows are -
Allocating
Purchas Price in M&A
Acquisition Cost Salvage
Value
1.Fair value of net assets (assets minus liabilities)
Estimated Useful Life
Transactions in trading securities can be

reported in cash flows from operations and/or
cash flows from investment.
Transactions in AFS securities should
reported in cash flows from investments.
be
2.Identifiableintangibles
Customer lists, patents, other saleable technologies
NOT: an assembled workforce
3.Goodwill
Cash FVAssets Id.Intangibles Goodwill = FVliab

(5,857) 787
938
5,270
1,138
Cash (A) + PP&E Acc. Depr = R/E

(5000)
5000
500 500 Depreciation Exp.
4200 (5000) (500) (300) Loss on Disposal
Operating Cash flow: Facebooks dividends for Apple
Investment Cash Flow: Apple sells Facebook stocks
Operating Cash Flow: Interest paid
Financing Cash Flow: Principle Paid
Recall CF Oprating = NI Accruals
Starting with NI, add/subtract accruals to
get CFO
Add noncash expenses : expenses that
Included in GOODWILL: -Synergies -Growth options

-Employees
-Other intangibles that are not separable
Income in later years will be reduced by goodwill
impairments
-If market value of an asset<its book value, then:
Reduce the book value of the asset
Recognize a corresponding loss(impairment) on the
I/S
-If market value of an asset>its book value, no
transaction is recorded. This asymmetry favors
conservative accounting.
For inventory and PP&E, we use LCM.
Market Value
Held-to-maturity (debt only)-even 6M
B/S
No
I/S
Operating Liability: -Accounts payable -Wages

payable -Income taxes payable -Unearned/Deferred
Revenues
Financing Liability: -Short-term borrowing
Current portion of long-term debt
Interest Expense = PV x Market Interest Rate
Interest payable= coupon rate par amount
-proceeds from issuance of notes

-repurchase of
notes
-purchase of treasury stock
-principal payment on
notes
Operating Lease
Rent expense (= periodic lease payment)
Capital Lease
Lease Asset (= PV of lease payments)
Lease Liability (= PV of lease payments)
Depreciation expense (= lease asset/term of the lease)
Interest expense (= interest rate outstanding lease
liability)
Cash PPE -Acc. Depr Lease Obligation R/E

13,122
13,122
(5,000)
(4,081)
(919)
4,370
(4,370)
If no public bond: 1) take ant interest rate of liab 2)

find peers
With Conversion of Convertible Bonds:
-Write off Liability
-Equity increase: 1. Issue new shares 2. Issue treasury
Cash Capitalized Issue Costs = Convertible Debt

244.7
5.3
250
(amortized through bonds 5 year maturity)
Not
Allowed
to
record
gain/loss
for
repurchase stock
Can
record
gain/loss
for
repurchase
convertible-bonds
Cash (A) = Liabilities (L) + Treasury Stock (E)

4780
4780
OCF gain on extinguishment of debtsubtracted from
net income
CFF proceeds from issuance of common stock
-proceeds from issuance of preferred stock
Temporary Difference: 1. Depreciation of fixed assets

2. Deferred revenue
3. Contingent liability (e.g.,
litigation)
Pretax Income >Taxable income => Deferred

Tax Liability
(GAAP)
(Tax code)
Effective Tax Rate =Tax Expense / GAAP pretax income

Permanent differences cause the effective tax rate
35%.
Permanent Difference: 1. Interest received from taxexempt bonds
2. Permanently reinvested foreign earnings (taxed at
foreign tax rate) 3. Fines and penalties
Net Operating Losses
If a US individual investor has a capital loss (i.e., sold
shares at a loss):
They can deduct the capital loss up to $3,000.
If they have losses in excess of $3,000, they carry
forward the excess and offset future taxable income.
If a firm incurs a loss for tax purposes:
If the firm had taxable income in the last two years, it
can carry the loss back and get a refund.
If there is not enough past taxable income, the firm can
carry the loss forward and offset future taxable income.
NOL carry forwards create a deferred tax asset.
Intuition: Firm will pay less cash taxes in future.
Deferred Tax Asset Valuation Allowance:
-Valuation Allowance = Liab

15,000
(15,000)
Gross Margin (profit)= RevenueCOGS

Operating
Margin
(profit)=Revenue
operating costs
Gross
margin
percentage=gross
profits/revenues
Operating margin percentage= operating

profits/ revenues
Net margin percentage (profit margin)= net

profits/ revenues
Return on Invested Capital = Net Operating

Profit after Tax/ (Debt + Equity)
Fix Assets Turnover= Revenue/ Net PP&E
Asset Turnover = Revenue / Average Total

Assets
A/R Turnover = Revenue */ Average Accounts

Receivable
A/P Turnover = COGS/ Average Accounts

Payable
Inventory
Turnover=
COGS
/
Average
Inventory
Cash to Cash= Days Receivables + Days
Inventory Days Payables
Days Receivables = 365 / (A/R Turnover)
Days Inventory = 365 / (Inventory Turnover)
Days Payables = 365 / (A/P Turnover)
R/E
Short-term Liquidity Measures
Working Capital=Current assets -current

liabilities
Current Ratio: Current Assets/ Current

Liability
Long-term / Overall Financial Risk Measures
Debt-Equity ratio=Total Liabilities / Total S/ E

ROE= Net Income / (Average Stockholders Equity)
ROE
=Profit Margin
Assets Turnover
Leverage
Net Income Net Income Sales

TA
=
Avg . Equity
Sales
TA
Avg . Equity
Pros (Relevance): R&D represents an expenditure that

should lead to future benefits. R&D expenses are
verifiable.
Cons (Reliability): The future benefits from the R&D

are hard to estimate both in value and in the timing.

Cheat Sheet For Accounting

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Cheat Sheet For Accounting

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Cash(A)=Deferred Revenue + R/E

A/R - Allowance for Bad Debt = R/E

A/R Turnover = Revenue / Average Accounts

Depreciation expense/ year =

Trading securities (debt and equity)

Cash AFS = Other Comprehensive Income R/E

Transactions in trading securities can be

Cash FVAssets Id.Intangibles Goodwill = FVliab

Cash (A) + PP&E Acc. Depr = R/E

Add noncash expenses : expenses that

Included in GOODWILL: -Synergies -Growth options

Held-to-maturity (debt only)-even 6M

Operating Liability: -Accounts payable -Wages

-proceeds from issuance of notes

Cash PPE -Acc. Depr Lease Obligation R/E

If no public bond: 1) take ant interest rate of liab 2)

Cash Capitalized Issue Costs = Convertible Debt

Cash (A) = Liabilities (L) + Treasury Stock (E)

Temporary Difference: 1. Depreciation of fixed assets

Pretax Income >Taxable income => Deferred

Effective Tax Rate =Tax Expense / GAAP pretax income

-Valuation Allowance = Liab

Gross Margin (profit)= RevenueCOGS

Operating margin percentage= operating

Net margin percentage (profit margin)= net

Return on Invested Capital = Net Operating

Fix Assets Turnover= Revenue/ Net PP&E

Asset Turnover = Revenue / Average Total

A/R Turnover = Revenue */ Average Accounts

A/P Turnover = COGS/ Average Accounts

Days Receivables = 365 / (A/R Turnover)

Days Inventory = 365 / (Inventory Turnover)

Days Payables = 365 / (A/P Turnover)

Short-term Liquidity Measures

Working Capital=Current assets -current

Current Ratio: Current Assets/ Current

Debt-Equity ratio=Total Liabilities / Total S/ E

Net Income Net Income Sales

Pros (Relevance): R&D represents an expenditure that

Cons (Reliability): The future benefits from the R&D

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