Accounting Cheat Sheet

1. Accounting Basics:

 Accounting Equation: Assets = Liabilities + Equity

 Double-Entry System: Every transaction affects at least two accounts (debit and
credit).
 Debits & Credits:
o Assets: Debit (+) | Credit (-)
o Liabilities: Credit (+) | Debit (-)
o Equity: Credit (+) | Debit (-)
o Revenue: Credit (+) | Debit (-)
o Expense: Debit (+) | Credit (-)

2. Financial Statements:

 Balance Sheet (Statement of Financial Position):

o Lists assets, liabilities, and equity.
o Snapshot of financial position at a specific date.
 Income Statement (Profit and Loss Statement):
o Shows revenue, expenses, and net income.
o Covers a specific period (e.g., a year).

3. Depreciation:

 Definition: Allocation of an asset’s cost over its useful life.

 Journal Entry:
 Depreciation Expense A/c Dr
 Accumulated Depreciation A/c Cr
 Methods: Straight-line, declining balance, units of production.

4. Final Accounts:

 Trading Account:
o Calculates gross profit (Revenue - Cost of Goods Sold).
 Profit and Loss Account:
o Lists all expenses and revenues.
o Calculates net profit (Gross Profit - Expenses).
 Balance Sheet:
o Shows assets, liabilities, and equity.

5. Inventory Valuation:

 FIFO (First In, First Out):

o Early purchases sold first.
 LIFO (Last In, First Out):
o Recent purchases sold first.
 Average Cost Method:
 o Total cost / Quantity = Cost per unit.

6. Accounting Principles:

 GAAP (Generally Accepted Accounting Principles):

o Follows matching principle.
o US-GAAP established by FASB.
 IFRS (International Financial Reporting Standards):
o Widely adopted outside the US.

7. Other Key Points:

 Conservatism: Consider risks, strict rules.

 Consistency: Use same methods year to year.
 Full Disclosure: Detailed info beyond statements.
 Going Concern: Assume business continues.
 Cost Principle: Keep costs at purchase price.
 Economic Entity: Separate records for each entity.