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Cheat sheets

1. The equation

  • Assets = Liabilities + Equity
  • Equity = Assets − Liabilities
  • Liabilities = Assets − Equity

2. Equity roll forward

  • Beginning + Stock + Revenues
  • − Expenses − Dividends
  • = Ending equity

3. Photo or movie?

  • Balance sheet (B): assets, liabilities, equity — one day
  • Income statement (I): revenues, expenses — the year
  • Clue words: Expense, Revenue, Sales → I
  • Payable, Prepaid, Unearned, Retained → B

4. Equity changers

  • Up: stock issued, revenue
  • Down: expenses, dividends
  • Everything else: no effect

5. Accrual rules

  • Revenue when the work is done
  • Expense when the thing is used
  • Cash timing does not matter

6. FSET layout

  • Cash + Noncash − Contra
  • = Liabilities + Contributed + Earned
  • Revenues − Expenses = Net income

7. The four adjustments

  • Paid early, now using it: asset ↓, expense ↑
  • Customer paid early, now earned: liability ↓, revenue ↑
  • Used, not paid: liability ↑, expense ↑
  • Earned, not billed: asset ↑, revenue ↑
  • Never touches cash

8. Bucket rule

  • Beginning + In − Out = Ending
  • Out = Beginning + In − Ending
  • In = Ending + Out − Beginning

9. Ratios

  • "For the year" → average balance
  • ROE = Net income ÷ Average equity
  • "As of a date" → ending balance
  • Debt to equity = Liabilities ÷ Ending equity

10. Signs and traps

  • (40) means −40
  • Dividends are never an expense
  • Borrowing is never revenue
  • Prepaid = asset, Unearned = liability