Summary of Ratios Used in This Book

Chapter Calculations
RISK RATIOS
Liquidity
Net credit sales
Receivables turnover ratio 5
Average accounts receivables

365 days
Average collection period 5
Receivables turnover ratio

Cost of goods sold

Inventory turnover ratio 6
Average inventory

365 days
Average days in inventory 6
Inventory turnover ratio

Current assets
Current ratio 8
Current liabilities

Cash + Current investments + Accounts receivable

Acid-test ratio 8
Current liabilities

Solvency
Total liabilities
Debt to equity ratio 9
Stockholders equity

Net income + Interest expense + Tax expense

Times interest earned ratio 9
Interest expense

PROFITABILITY RATIOS

Gross profit
Gross profit ratio 6
Net sales

Net income
Return on assets 7
Average total assets

Net income
Profit margin 7
Net sales

Net sales
Asset turnover 7
Average total assets

Net income
Return on equity 10
Average stockholders equity

Net income
Return on the market value of equity 10
Stock price Number of shares outstanding

Net income Preferred stock dividends

Earnings per share 10
Average shares of common stock outstanding

Stock price
Price-earnings ratio 10
Earnings per share

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MHID: 0078025540 Back endsheets

Author: J. David Spiceland Color: 4/c
Title: Financial Accounting, 3e Pages: 8, 5
 Framework for Financial Accounting Representative Chart of Accounts*
Two primary functions of financial accounting are to measure activities of a company and communicate those
measurements to investors and other people for making decisions. The measurement process involves record-
ing transactions into accounts. The balances of these accounts are used to communicate information in the BALANCE SHEET INCOME STATEMENT
four primary financial statements, which are linked. For more detailed illustrations of financial statements, see
the corresponding page in parentheses. A comprehensive list of accounts used to measure activities in this ASSETS LIABILITIES REVENUES
textbook is provided on the next page. Cash Accounts Payable Service Revenue

Petty Cash Notes Payable Sales Revenue

Accounts Receivable Unearned Revenue Less: Sales Discounts

Make Decisions About Less: Sales Returns
Less: Allow. for Uncollectible Accts. Salaries Payable
Less: Sales Allowances
Notes Receivable Interest Payable
Investors and Companies
Interest Revenue
creditors Interest Receivable Utilities Payable
Dividend Revenue
Supplies Dividends Payable
Equity Income
Inventory Income Tax Payable
Gain
Prepaid Advertising FICA Tax Payable
Communicate Activities Unrealized Holding Gain
information to: Accountants measured by: Prepaid Insurance Unemployment Tax Payable Net Income
Prepaid Rent Sales Tax Payable
Investments Contingent Liability EXPENSES

Land Warranty Liability Advertising Expense

Land Improvements Bonds Payable Amortization Expense

Financial Statements (in order) Bad Debt Expense
Accounts Used to Buildings
Income Statement Measure Activities Cost of Goods Sold
Equipment STOCKHOLDERS EQUITY
(Illustration 15, p. 10) Delivery Expense
1. Assets Resources of a company Less: Accumulated Depreciation Common Stock
Revenues Depreciation Expense
Expenses 2. Liabilities Amounts owed by the company
Natural Resources Preferred Stock
= Net income 3. Stockholders Equity Owners claims Entertainment Expense
4. Dividends Distributions to owners Patents Additional Paid-in Capital
Income Tax Expense
5. Revenues Sales of products or services Copyrights Retained Earnings
Insurance Expense
Statement of Stockholders Equity 6. Expenses Costs of earning revenues
Trademarks Less: Treasury Stock
(Illustration 16, p. 12) Interest Expense
Franchises Unrealized Holding Gain Legal Fees Expense
Common Stock + Retained Earnings = Stockholders Equity
Other Comprehensive Income
Beginning balance Beginning balance Goodwill Payroll Tax Expense
Effect of Debit and Credit on
+ New issuances + Net income Unrealized Holding Loss
Account Balances Other Comprehensive Income Postage Expense
Dividends
= Ending balance = Ending balance Assets Liabilities Property Tax Expense
Dividends Stockholders Equity Rent Expense
Expenses Revenues Repairs and Maintenance Expense
Balance Sheet Research and Development Expense
Debit = Debit = *You will see these account
(Illustration 17, p. 13) DIVIDENDS**
titles used in this book and in Salaries Expense
Assets = Liabilities + Stockholders Equity Credit = Credit = your homework. In practice,
(including Cash) Dividends (Cash) Service Fee Expense
companies often use variations Stock Dividends Supplies Expense
of these account titles, many of
**Reported in the statement Utilities Expense
Statement of Cash Flows Recording Business Transactions which are specific to particular
of stockholders equity.
(Illustration 18, p. 15) industries or businesses. Warranty Expense
Date Debit Credit
Cash flows from operating activities Loss
+ Cash flows from investing activities
Account Title Amount
Account Title Amount Unrealized Holding Loss
+ Cash flows from financing activities
(Description of transaction) Net Income
= Change in cash

spi25540_endsheet.indd 2 03/06/13 1:52 PM

MHID: 0078025540 Back endsheets

Author: J. David Spiceland Color: 4/c
Title: Financial Accounting, 3e Pages: 6, 7