ABA cheat sheet

Accounting equation: Assets = Liabilities + Equity; every transaction preserves this balance.

Accrual basis recognizes revenue when earned and expenses when incurred, regardless of cash timing.

Double-entry: each transaction debits at least one account and credits at least one for equal amounts.

Normal balances: assets and expenses debit; liabilities, equity, and revenue credit.

Inventory cost flow: FIFO assigns oldest costs to COGS; LIFO assigns newest; weighted average blends all units.

Depreciation methods: straight-line = (cost − salvage) / useful life; declining balance applies a fixed rate to book value.

Revenue recognition (ASC 606) five steps: contract, performance obligations, price, allocation, recognition as obligations are satisfied.

Aging of receivables estimates bad debt by applying loss rates to receivable age buckets.

Comparative statements present multiple periods side by side to show trends in balances and results.

A classified balance sheet separates current from noncurrent assets and liabilities using a one-year or operating-cycle cutoff.

Common-size analysis expresses each line as a percent of total assets (balance sheet) or net sales (income statement).

Horizontal (trend) analysis states each period as a percentage of a base-year amount.

Full disclosure principle requires notes covering accounting policies, contingencies, and subsequent events.

Segment reporting discloses revenue, profit, and assets for reportable operating segments meeting quantitative thresholds.

Interim reports generally use the same accounting policies as annual statements, with expense allocation across periods.

Related-party transactions and accounting-policy changes must be disclosed even when amounts are immaterial to totals.

Closing entries zero out temporary accounts (revenues, expenses, dividends) into retained earnings.

Adjusted trial balance is prepared after accruals, deferrals, depreciation, and inventory adjustments are recorded.

Work sheet order: unadjusted trial balance, adjustments, adjusted trial balance, income statement, balance sheet.

Current ratio = current assets / current liabilities; quick ratio excludes inventory and prepaids from the numerator.

Retained earnings ending = beginning + net income − dividends declared.

Cash flow statement: operating (net income adjusted for noncash and working capital), investing, financing.

Indirect method starts with net income and adjusts for noncash items and changes in current operating accounts.

Statement of cash flows reconciliation: ending cash = beginning cash + net change from all three activities.

Taxable income = gross income − allowable deductions; tax liability = taxable income × applicable rate schedule.

Marginal rate applies to the next dollar of income; average rate = total tax / total taxable income.

Book-tax differences: temporary differences reverse over time (deferred tax); permanent differences never reverse.

Deferred tax asset arises from deductible temporary differences; deferred tax liability from taxable temporary differences.

Filing status (single, married filing jointly, head of household) determines brackets, standard deduction, and thresholds.

Capital gains are taxed at preferential rates when the asset was held beyond the long-term holding period.

Standard deduction vs. itemized deductions: taxpayer uses the larger; itemized include mortgage interest, state taxes, charity.

Estimated tax payments are required when withholding does not cover the prior-year or current-year liability threshold.

Contribution margin = sales − variable costs; contribution margin ratio = contribution margin / sales.

Break-even units = fixed costs / unit contribution margin; break-even dollars = fixed costs / contribution margin ratio.

Target profit in units = (fixed costs + target profit) / unit contribution margin.

Margin of safety = actual (or budgeted) sales − break-even sales, in dollars or units.

Relevant costs differ between alternatives and are future-oriented; sunk costs are irrelevant.

High-low method: variable cost per unit = (high cost − low cost) / (high activity − low activity).

Predetermined overhead rate = estimated total overhead / estimated allocation base (e.g., direct labor hours).

Underapplied overhead occurs when actual overhead exceeds applied; overapplied when applied exceeds actual.